The purpose of the objectives of the WTO is spelled out in the preamble to Marrakesh Agreement. In a nutshell, these are :
To ensure cuts in tariffs and other trade barriers.
Eliminating unequal discrimination of international economic affairs.
To support higher living standards, full employment, increased real income, and successful demand, as well as increased production and trade between Member nation’s goods and services.
In particular, to make a positive impact that ensures the least-developed countries have shared in international trade, which reflects the needs of their economic development.
To promote the optimum use of the world’s sustainable development capital.
To facilitate an integrated, more accessible, and sustainable trading mechanism integrating all the agreements of the actual Multi-trade negotiations of the Uruguay Round.Above all, to ensure that trade policies are connected, environmental policies are taken care of by member countries in creating a new economic order of sustainable growth and development.
The Organizational structure of the WTO is outlined in the following chart.
The Ministerial Conference (MC) is at the top of the structured organization of the WTO. It is the supreme governing body which takes ultimate decisions on all matters. It is constituted by representative (usually, Ministers of Trade) all the member countries.
The General Council (GC) is composed of the representatives of all the members. It is the real engine of WTO which acts on behalf of the MC. It also acts as the Dispute Settlement Body as well as the Trade Policy Review Body.
There are three councils viz : the Council for Trade Related Aspects of Intellectual Property Rights (TRIPS) operating under the GC. These councils with their subsidiary bodies carry out their specific responsibilities.
Further there are three committee, viz, the committee on Balance of Payments Restrictions (CBOPR) and the committee o Budget, Finance and Administration (CFBA) which execute the functions assigned to them by the WTO Agreement and the GC.
The Administration of the WTO is conducted by the Secretariat which is headed by the Director General (DG) appointed by the MC for the tenure of four years. He is assisted by the four Deputy Directors from different member countries. The annual budget estimates and financial statement of the WTO are presented by the DG to the CBFA for reivew and recommendations for the final approval by the GC.
The distinctive features of WTO – World Trade Organization are :
Unlike the GATT, it is a legal entity.
Unlike International Monetary Fund (IMF) and World Bank it is not an agent of the United Nations.
Unlike the IMF and the World Bank there is no weighted voting, but all the WTO members have equal rights.
Unlike the GATT, the agreements under the WTO are permanent and binding to the member countries.
Unlike the GATT, the WTO dispute settlement system is based on dilatory but automatic mechanism it is also quicker and biding on the members. As such the WTO is a powerful body. Unlike the GATT, the WTO’s approach is rule based and time bound.
Unlike the GATT, the WTO has a wider coverage. It covers trade in goods as well as services.
Unlike the GATT, the WTO has a focus on trade related aspects of intellectual property rights and several other issues of agreements.
Above all the WTO is huge organizational body with a large secretariat.
The General Tariff and Trade Agreement (GATT) was signed in 1947 to facilitate foreign trade, liberalize policies and abolish tariffs. GATT is a multilateral agreement that regulates international trade between several nations of the world. The key goal is to substantially reduce tariffs and eliminate certain trade barriers. In 1995, however, the GATT was replaced by the World Trade Organization ( WTO). The WTO promotes and facilitates inter-country trade as well as contributes to the settlement of trade disputes. The WTO intends to provide for the conduct of trade relations among its members. The WTO establishment represented the largest foreign trade reform since World War II, following the Uruguay Round.
Difference between GATT & WTO
The following points describe in-depth the difference between the GATT and the WTO:
GATT was temporary and ad-hoc. The WTO and its agreement have a solid legal basis on a permanent basis with the WTO since the WTO Agreements have been ratified by members.
GATT refers to a multilateral international agreement to facilitate free exchange and remove cross-country barriers to trade. On the contrary, the WTO is a global organisation, replacing the GATT and addressing the international trade rules among the Member States.
Because GATT is a simple agreement, the institutional presence does not exist but it has a small secretariat. The WTO, on the other hand, is together with a secretariat a permanent institution.
The participating nations are referred to as GATT contracting parties although they are referred to as the Member States for the WTO.
The provisional implementation protocol clause of GATT 1947 was not transmitted to the WTO. In the WTO, the original GATT rules-GATT Rules 1994 have been changed.
GATT agreements are temporary in nature and may be considered as a permanent agreement or not by the Government after 47 years. WTO obligations, on the other hand, are permanent from the beginning.
In the sense that the laws of GATT only apply when the trade-in products are made, the WTO has a broader reach than GATT. In comparison, the WTO is whose laws relate to intellectual property and consumer services and aspects.
Mainly a multilateral agreement is the GATT agreement, although it is later added to the plurilateral agreement. The WTO deals, by comparison, are strictly multilateral.
The GATT permits the continuity of domestic law, while the WTO can not do the same.
GATT ‘s conflict settlement system was slower, less robust, and blockable. In contrast to the WTO which has a very efficient dispute settlement system.
The WTO or World Trade Organization is a body comprises of governments controlling international trade among nations. WTO began its operation on 1st January 1995 under the Marrakech Agreement, which was signed on 15 April 1994 by 123 nations, to replace the General Tariff and Trade Agreement (GATT). It is the world’s biggest multinational business organization. The WTO is regulating trade between countries for services, goods, and intellectual property by providing a mechanism for solving trade disputes and agreements process aimed at ensuring the safety of participants who have signed WTO agreements.
The WTO forbids discrimination between trading partners but makes exceptions for protection of the environment, national security, and other essential objectives. Trade-related conflicts are settled at the WTO by a conflict resolution process through impartial judges. The new Director-General of WTO is Roberto Azevêdo, who leads a team of over 600 in Geneva, Switzerland. On 7th Dec. 2013, all members agreed on a trade facilitation deal, part of the Bali Package of Decisions, which was the first substantive deal in the history of the organization.
WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement on 23rd January 2017 was amended since the organization opened in 1995, and this change was made to ensure a legal path for developing countries to access remedies which are affordable under WTO rules. The WTO has significantly affected trade agreements, ‘nearly all the latest [preferential trade agreements (PTAs)] directly refer to the WTO, sometimes hundreds of times in multiple chapters…
in several of these same PTAs we note that large portions of the vocabulary of the treaty are often referred to by the WTO; Features These are regarded as an important function of the WTO: It manages the enforcement, operations, and administration of the agreements covered (except that when China joined the WTO in Dec 2001 it does not enforce any agreements) It allows for a platform for dialogue and conflict resolution. In addition, it is the responsibility of the WTO to evaluate and promote national trade policies and to ensure that trade policies are consistent and clear through surveillance in global economic policymaking.
Another WTO priority is supporting emerging developing, least-developed and low-income countries to adapt to WTO rules and disciplines through technical cooperation and training. The WTO shall promote the implementation, maintenance, and control and further the goals of this Agreement and the Multilateral Trade Agreements, and will also provide the basis for the implementation, operation, and administration of the Multilateral Trade Agreements. The WTO shall provide a forum for negotiations between its members on their multilateral trade ties in matters covered by the Agreement set out in the Annexes to this Agreement.
The WTO is responsible for administering the agreement on the procedure and rules governing dispute settlement. The WTO shall oversee the process for revising trade policy. The WTO shall collaborate, as required, with the International Monetary Fund ( IMF) and IBRD and its associated agencies with a view to make global economic policy more coherent. The above five lists are supplemental World Trade Organization features. When globalization pushes forward in today’s world, the need for an International Organization to regulate trade networks has become vitally significant.
As the number of trade rises, problems such as protectionism, trade barriers, tariffs, intellectual property abuses emerge because of discrepancies in each nation’s trading laws. If these issues occur, the WTO acts as the mediator between nations. The World Trade Organization may be considered the result of globalization and perhaps one of the most important organizations in the globalized world of today. The WTO is also a center of economic study and analysis: the organization publishes frequent analyses of the global trade image in its annual publications and research reports on particular topics.
Finally, the WTO closely cooperates with the other two components of the Bretton Woods network, the IMF, and the World Bank. Trading System principles The WTO provides a trade policy framework; it does not specify or stipulate outcomes. This is, it is concerned with setting the rules of foreign negotiation games. Five principles are especially important in understanding both the GATT before 1994 and the WTO: Don’t discriminate. This has two main components: the Most Favoured Nation ( MFN) law, and the national policy of care. They are incorporated in the key WTO rules on products, services, and intellectual property, but in these areas, their exact reach and purpose differ.
The MFN rule requires a WTO member to apply the very same conditions to all trade with other WTO members, i.e. a WTO member must agree to give the most advantageous conditions to all other WTO members under which it permits trade-in that certain product or service. ‘Show anyone a special favor, and you will do the same for all other WTO members.’ National treatment means that imported products will be handled no less favorably than domestically generated products (at least after international goods have entered the market) and implemented to address non-tariff trade barriers. Mutuality. It represents both a desire to limit the spectrum of free-riding that might occur due to the MFN law and a desire to have better access to international markets. A similar argument is that for a nation to bargain, the benefit from doing so must be greater than the gain from unilateral liberalization; mutual compromises are intended to make these gains materialize. Commitments are binding and enforceable. A schedule (list) of concessions lists the tariff commitments reached by WTO members during a multilateral trade agreement and on accession.
Such schedules set “ceiling bindings”: a country can modify its bindings but only after negotiating with its trading partners, which could mean compensating them for loss of trade. If grievances and disputes are not resolved, the complaining country can invoke procedures for the settlement of disputes within the WTO. Overall transparency. WTO members are expected to publish their trade regulations, maintain mechanisms that allow for the analysis of trade-related administrative decisions, respond to requests for information from other members, and notify the WTO of changes to trade policies.
Such internal transparency standards are reinforced and promoted by the Trade Policy Review Mechanism (TPRM) with regular country-specific reports (trade policy reviews). The WTO program also seeks to boost predictability and reliability, thus preventing the use of quotas and other mechanisms used to set limits on import quantities. Values on health. Governments are able to restrict trade under particular circumstances. The WTO agreements require members to take steps not only to protect the environment but also to protect public health, animal health and plant health.
In this respect there are three forms of provision: Articles permitting the use of trade measures to achieve non-economic targets; Articles aimed at ensuring ‘equal competition;’ members should not use environmental conservation legislation as a cover for protectionist policies. Provisions for foreign interference in the trade. Exceptions to the MFN principle often require developed countries, national free trade zones and customs unions to be viewed as preferentially. Structure of organization The WTO’s highest authority is the Ministerial Conference, which must meet every two years at least.
The daily work is done in between each ministerial conference by three bodies whose composition is one and the same; they vary only by the terms of reference by which each body is elected. The Governing Council The body to settle disputes The Expert Committee on Foreign Policy The General Council, headed by New Zealand ‘s David Walker as of 2020, has the following divisions overseeing committees in various areas: The Goods Industry Commission There are 11 committees each with a particular function under the Goods Council’s jurisdiction. The committees are comprised of all WTO participants.
The Textiles Monitoring Body is separate from the other commissions but is also under Goods Council control. The body has its own president and just ten members. The organization also has many textile-related classes. Intellectual property rights committee on trade-related issues Intellectual property information at WTO, news and official reports of the TRIPS Council ‘s operations, and descriptions of the WTO ‘s work with other international organizations in the region. Products trade committee The Council for Trade in Services functions under the authority of the General Council and is responsible for overseeing the management of the GATS.
This is open to all members of the WTO and may create subordinate bodies as appropriate. Committee on Trade Agreements The Committee for Trade Negotiations (TNC) is the committee which deals with the current round of trade talks.
There are number of ways for internationalization / globalization of business. these are referred as foreign market entry strategies. Each of these ways has certain advantages and disadvantages. One strategy for a particular business may not be very suitable for another business with different environment. Therefore it is quite common that a company employs different strategies for different markets.
The different strategies are :
Imports : Imports is defined as goods and services produced by host country and purchased by parent country. it is reverse process of Exports.
Exports : Exports is defined as goods and services produced in one country then get marketed to other country.
Foreign Direct Investment (FDI) : Here funds are invested in equity from parent country to a host country. Rich countries invest funds in growth industries and geographic areas of economic development.
Licensing : Licensing which involve minimal commitment of resources and effort on the part of the international marketer, are easy ways of entering the foreign markets. Under international licensing, a firm in one country (the licensor) permits a firm in one country permits the firm in another country to use the intellectual property (such as patents, trademarks, copyrights, technology, technical know – how, marketing skill or some other specific skill). The monetary benefits to the licensor is the royalty fees, which the licensee pays.
Franchising : Franchising is giving right at a parent company (Franchiser) to another company (Franchisee) using his name selling his products, do business in a prescribed manner and get advantage of brands of parent company.
Joint Venture : It is a mutual agreement of two or more partners across globe to collectively own the company to produce goods and services. This will be pooling the resources to mutual advantages.
Manufacturing in Foreign Country : When a company finds better economy in manufacturing in host country due to lower costs of materials labour or duties the manufacturing is undertaken in host country. The local conditions in host country should support manufacturing and marketing activities.
Management Contracts : The foreign country needs management expertise in managing existing or a sick company this method is used. Under management contract the service provided gets fees or shares in the company. The contracts is for a specific period.
Strategic Partnerships : The positive aspect of two companies in different countries are joined together. The resources are pooled together to produce new marketable products. This will put both companies in win-win situations .
Mergers : A Corporate Merger is a combining of corporations in which one of two or more corporations survives and works for common objectives. These are several types of mergers with a variety of filing requirements based on number of corporations merging and the type of merger.
Counter Trades : Counter trade is a form of international trade in which certain exports and import transactions are directly linked with each other and in which imports of goods are paid for by exports of goods, instead of money payments.
There are many Problems in International Business. The restraining forces slow down the progress of companies that take up International Business. The restraining forces are :
First Main Problem in International Business is Culture: The culture of the nation and the companies should have an international vision. The long term perspective of companies should be to move wherever market opportunities are good. Inward-looking culture makes companies remain local.
Another main problem in International Business is Market Competition in Host Country: If the best global companies enter the markets, the competition goes intense, and accordingly, inefficient companies have to close their shops.
Another main problem in International Business is Costs: The competition calls for marketing quality products at competitive prices. If prices are high the market rejects the products.
One of the main problems in International Business is National Controls: The nation-build barriers for outside country manufacturers by increasing trade barriers. Trade barriers will be direct by way of high customs duties. Indirect barriers will be licensing procedures, quota system, inspection, certification, and tedious paperwork.
Another main problem in International Business is Nationalization: Due to Ideological differences, some nations do not trade with nations of their dislike.
Another main problem in International Business is War and Terrorism: The political uncertainties and war-like situation are blockages to the growth of trade.
One of the main problems in International Business is Shortsightedness of Management: Some management ignores vast business opportunities across national borders. The companies do not wish to go beyond national borders. If a company does not adapt to local conditions it does not survive.
One of the main problems in International Business is Organization History: The companies who are contended and like to remain within a nation.
Another main problem in International Business is Domestic Forces: The government or social restrictions imposed on commerce and industry become a hurdle in a company going global.
One of the main problems in International Business is Conflict within companies and within the international organization: Difference of opinion in strategies to be adopted between different management levels in international business. If support is inadequate the international business proposal fails.
The Technology era since the last two decades is bringing a fundamental shift in business around the globe. The national economies are opening up and allowing cross border trade and investments. Technologies are helping to reduce distances and improve business.
Business is a medium of growth for any country. When a business grows internationally country’s economy also grows.
International Business is a combination of two words :
INTERNATIONAL + BUSINESS = INTERNATIONAL BUSINESS
“International Business is doing business across national political boundaries”. The business transactions may be importing, exporting, and in the form of goods in any areas of transactions like transfer of process knowledge, managerial inputs, capital investments, and consultancy.
In other words – when the business of a country that type of business is called international business. It is concerned with the movement of goods and services, capital technology, raw material, manpower, etc.
International business also includes :
Cross border transaction in Intellectual property rights for e.g. patents, trademarks copyrighting.
Investment in physical and financial assets in a foreign country.
Contract manufacturing or assembly of goods.
Buying and selling in foreign countries through imports and exports.
Establishment of warehousing and distribution system.