The World Trade Organisation Opportunities and Threats

The foundations of the WTO and its defining rules

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The foundations of the WTO and its defining rules

The success of the WTO, and its predecessor the GATT, has been built upon four pillars; non-discrimination; reciprocity; market access; and fair competition.

Non-discrimination between WTO members is underpinned by the ‘most favoured nation (MFN) rule’. This states that any favourable trading arrangement extended by one member country to another, must be extended to all member countries. Thus a member country cannot apply a higher tariff rate to one member country than to another; the lower rate must be offered, unconditionally, to all other WTO members.

The MFN rule thus creates both greater economic efficiency, and ensures that economically powerful countries do not exploit their market power over economically weak ones, in times of recession, by closing their markets to them.

Reciprocity in trade talks means that, as a member of the WTO, you have both rights and obligations. If, for example, you accept a reduction in a tariff, then you must offer something comparable in return. The aim here is to ensure that no country will be allowed to free ride in the process of negotiation.

Market access means that member countries must be free to export to others. The GATT was particularly weak in upholding this principle, and it was this more than anything that led to calls for the creation of the WTO. The WTO’s powers to uphold market access are considerably stronger than those of the GATT. If a country is unhappy with another government’s actions in respect to trade or its enforcement of a trade agreement, then it can invoke the WTO’s dispute settlement procedure (which is binding on the countries in dispute), rather than resorting to some unilateral trade retaliation. In addition to this facility, the WTO insists that trade regimes are transparent and easy to scrutinise, and hence open to more effective surveillance.

Fair competition is based upon the principle of free trade. This means that governments should not intervene in support of exporters or industries threatened by imports. However, if competition is seen as too vigorous and injurious to domestic industries, or trade is seen as threatening public health or national security, then there is the facility within the WTO for a national government to intervene to rectify the problem. Barriers to trade used on this basis are classified as being perfectly legal.

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