In this article we will discuss about the World Trade Organisation (WTO) and how does it function.

Recognising both the temptation of short-sighted trade policy and the gains from trade, nations, large and small, have since World War II engaged in a variety of efforts to reduce trade barriers. At the global level, the prominent effort is known as the General Agreement on Tariffs and Trade (GATT). On a slightly smaller scale, regional trading blocs have also been developed.

After World War II, the countries of the world realised that there was much to be gained from establishing an international economic order in which barriers to trade were reduced. They established the GATT In 1995, this was replaced by the WTO.

GATT was founded on three guiding principles. The first was reciprocity if one country lowered its tariffs, it could expect other countries in GATT to lower theirs. The second was non-discrimination: no member of GATT could offer a special trade deal that favoured only one or a few other countries I he third was transparency: import quotas and other non-tariff barriers to trade should be converted into tariffs, so their effective impact could be ascertained.


GATT has proceeded in a number of stages, called rounds (the Kennedy Round, completed in 1967, the Tokyo Round, completed in 1979, and most recently the Uruguay Round, completed in 1993). Collectively, the rounds have reduced tariffs on industrial goods markedly. The average tariff on manufactured goods was 40% in 1947. By 1992, they had been reduced to 5%, and the Uruguay Round reduced them still further.

The Uruguay Round was remarkable for two achievements. It began the process of extending the principles of free and fair trade to a number of much more difficult areas. There were, for instance, moves toward reducing agricultural subsidies, particularly export subsidies, and ensuring that intellectual property rights – patents and copyrights – were respected.

Secondly, it created the WTO to help enforce the trade agreements. Pre­viously, a country that believed that it was suffering from an ‘unfair trade’ practice could bring a case to a GATT panel that would examine the evidence.

Even if the panel was unanimous, however, in finding that an unfair trade practice had occurred, there was little in the way of effective enforcement. Under the WTO, a country injured by an unfair trade practice will be authorised to engage in retaliatory actions.


GATT and WTO have made some progress in reducing trade barriers among all countries. But the difficulties of reaching agreements involving so many parties have made progress slow. In the mean time, many countries have formed trading blocs, agreeing with their more immediate neighbours not only to eliminate trade barriers, but also to facilitate the flow of capital and labour. Perhaps the most important of these is the European Union the successor to the Common Market, which now embraces most of Europe.

India, in common with other developing countries, has been finding several provisions of the agreement, especially in regard to Trade-Related Intellectual Property Rights (TRIPs) and Trade-Related Investment Measures (TRIMs) harmful to national interest in the long run.

The two blocks of developed countries — one led by the US and the other by the European Union — are preoccupied with their own concerns in a self-centered fashion and have been slanging out their own respective ap­proaches to world economic order without reference to the interests of developing countries.

It is imperative to arouse public awareness within the country over the implications of the WTO agreement with respect to India’s national priorities and strategies in the fields of agriculture, industry, trade, commerce, infrastructure development and so on, and its impact on eco­nomic reforms, the business corporates, financial sector etc.


On this vital issue, it is equally necessary to mobilise the developing countries to make common cause with India which, because of its record in managing a highly diversified and sophisticated economy, is eminently suited to forge a common platform to bring pressure on the world commu­nity to safeguard the interests of the developing world.

Such an anticipatory move is also essential to strengthen the hands of the government and help it muster the needed political will to have the legitimate demands of the people reflected in the revised agreement.