Was the WTO an Improvement Over Gatt?

“The World Trade Organisation (WTO) is the only international body dealing with the rules of trade between nations and its importance is hard to underestimate.”

Director-General Pascal Lamy, opening speech for WTO Public Forum 2008: “Trading into the Future” 24.09.2008

Critically assess whether creation of the WTO introduced any significant improvements from GATT in regulating international trade. Support your arguments with reference to decisions of the Dispute Resolution Body.

Integration into the international economy is indispensable trend for all countries of the world. Thus, a wide range of agreements and organizations have been established now such as General Agreement on Tariffs and Trade (GATT), North American Free Trade Agreement (NAFTA), Asian Free Trade Area (AFTA), Asian- China Free Trade Agreement (ACFTA) and the World Trade Organization (WTO). Among these ones, the WTO set up on 1 January 1995, but it has the most members with 153 countries. Although the organization is quite young in comparison with other organizations, its trading system started from more than sixty years ago since 1948 due to the premise of the WTO’s regulations derived from the GATT. The last GATT round, was the Uruguay Round which caused lead to the establishment of the WTO. Therefore, the establishment of the WTO is a dramatic improvement from GATT in regulating international trade.

At opening speech for the WTO Public Forum 2008: “Trading into the future” on 24th September 2008, the director- General Pascal Lamy said that: “The World Trade Organization (WTO) is the only international body dealing with the rule of trade between nations and its important is hard to underestimate”.

Additionally, according to the official wed side of the WTO, the main meaning of the organization sated that:

“WTO is the only global international organization dealing with the rule 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 in their parliaments. The goal is to help producers of goods and services, exporters and importers conduct their business.”

Existing since 1995, but the WTO has a long history which attached the establishment of other organizations. Firstly, The International trade Organization (ITO) was proposed to establish with the purpose of creating regulations for international trade in 1944. However, it was not ratified by some members, so the ITO could not set up. Although the establishment of the organization was not successful, the 23 nations gathered to sign the General Agreement on Tariff and Trade (GATT) which had the same target as the ITO’s. The GATT was a “multilateral instrument” and “an international forum” in order to promote free trade and reducing trade barriers on trading goods between members. Moreover, the GATT had a common mechanism to solve trade disputes. With a range of agreements signed from 1948 to 1994, the GATT played a crucial role in providing the rules of the system to stimulate global process with more than one hundred members. However, when the world economy developed, the international trade becomes more complex, the GATT was not appropriate to deal with emerge issues. As a result, on 1st January 1995 the establishment of the WTO is indispensable. Although the GATT was replaced by the WTO, the working of the GATT is the premise of the WTO Council for Trade in Goods.

Even though the main of the WTO’s current work comes from the 1984-1994 negotiations called the Uruguay Round and earlier negotiations under the GATT. However, in comparison with GATT, there are some main differences between the WTO and GATT which are the improvements and the outstanding points of the organization.

Firstly, in terms of the nature, on the one hand, the GATT was a set of rules, the GATT mainly related to the multilateral agreements with no institutional foundation. On the other hand, the WTO is a permanent institution with a permanent framework. The structure of the WTO includes a Ministerial Conference, a General Council, a Dispute Settlement Body, and a Secretariat.

Secondly, with regard to the scope, whereas the GATT rules related to trade in goods, the WTO agreements applied trade in goods- the General Agreement on Tariffs and Trade (GATT), services- The General Agreement on Trade in Services (GATS), and the Trade-Related Aspects of Intellectual Property (TRIPS). Clearly, the field of the WTO is much wider than the GATT and the GATT now responsibilities in the WTO Council for trade in goods.

Thirdly, there are also some differences in relation to approach. The GATT was a multilateral instrument; a series of new agreements was adopted during the Tokyo Round, causing a fragmentation of the multilateral trading system. Meanwhile, most agreements and commitments of the WTO were adopted and accepted by its Members, as a “single undertaking”: the agreements which constitute the WTO are all multilateral, and therefore involve commitments for the entire membership of the organization. Beside, there is a difference in making decision. Even though the WTO still continues the GATT’s making decision rule by consensus principle. However, if the consensus can not achieve, decision will be made through voting with a majority of the votes cast and the basis of one country one vote. Thus, all the WTO agreements are not only easier to reach but also fairer than the GATT’s.

The last improvement point between the GATT and the WTO is distinct of the Dispute Settlement Mechanism (DSM). Trade often happens conflicting benefits amongst parties, thus the aim of DSM is to settle dispute. Actually, the DSM of the WTO has significant improvement compared to the GATT’s. The WTO dispute settlement system has specific time limits for each stage unlike the GATT system that causes many cases was dragged in long time. The WTO has many changes in order to ensure minimum blockages than in the old GATT. Under the GATT, it is easy to the ruling and the establishment of the panel can be blocked by party with its veto power because of consensus rule. Evenly, decision given would be not fair and objective due to influence of the contracting party’s power. Thus many dispute cases happened would be not brought to the GATT. Moreover, the WTO’s dispute settlement mechanism (DSM) has a permanent Appellate Body (AB), which was not available in the GATT, to review findings by the Panel report. Many economists stated that the DSM is a “key component” of the WTO.

Another distinct point of the WTO’s DSB is that the parties must start through consultation to resolve the dispute. The countries must meet each other to settle by themselves. If it fails, the WTO director or the third party will help them. Thus the role of this stage was raised. Unlike GATT, the consultation period used to be ineffective. In the WTO, the function of this period was proved by many lawsuits that were successfully resolved without the Panel or the DSB. According to statistic approximately 50 percent of lawsuits were resolved. For example the case of the US and the Philippines, the US is a complainant and the Philippines is respondent in relation to “Measures affecting pork and poultry” in 1997. The US supposed that the Philippines implemented these tariff rate quotas. In particular, the Philippines delayed in allowing access to the import quota quantities through the licensing system. However, the dispute was resolve quickly on 12 March 1998 as the two parties had a “mutually agreed solution” by a successful communication to end the suit. Another lawsuit was achieved good result in the consultation stage. It is the case of Bangladesh and India. On 28 January 2004 consultations were requested by Bangladesh. According to Bangladesh, all regulations in terms of anti-dumping on Batteries from Brazil were inconsistent in the Anti-Dumping Agreement. The complainant accepted a mutually satisfactory solution which the parties reported the DSB. Actually this stage helps both parties save time and money as joining a suit.

Clearly, the WTO has many improvements from GATT in regulating international trade, special in respect to decisions of the Dispute Resolution Body. “Prompt compliance with recommendations or rulings of the DSB is essential in order to ensure effective resolution of disputes to the benefit of all members” (WTO, Art 21.1, of the DSU). The DSM has emerged as one of the most “robust instruments” of international rules (Kenson, Lighthizer, 2007). Many lawsuits or disputes were resolved successfully by the Dispute Solution Board. Among members who may benefit the most from the operation of the DSM are developing countries. They can get right and fair decisions which are not influenced by any other powers. One of the examples of this situation is the case of Venezuela, Brazil and the US which is the most typical evidence of the WTO’s just and upright decisions. On 23rd January 1995, Venezuela complained to the Dispute Settlement Body (DSB) and requested a consultation due to difference of treatment between imported gasoline and domestic gasoline of the US. Then Brazil also had a same requirement to the DSB to sue the US in April 1995. The US gave the preventing air pollution reason to set out baseline figures for gasoline sold on the US, but the methods for imported and local gasoline were different. This country applied a stricter rule on the chemical compositions of the importation of gasoline from oversea. The gasoline from the two countries must be filtered more than the local’s. Example, the oxygen content must more than 2 percent, the benzene rate must not exceed 1 percent and the gasoline must be free of heavy metals. Surely, it was unequal when they were not the same standard to enough conditions to appear on the market. On 10 April 1995 and on 31 May 1996, the Panels were established for the case of Venezuela and Brazil, respectively. According to the Panel, the US’s measure treatment imported gasoline “less favorably” than domestic gasoline in violation of The National treatment principle in the Art, III:4 of GATT and could not be justified under exceptions in accordance with conventions rule of the WTO for health and environmental issues in the GATT Art, XX(g) which list of general exceptions. Therefore the Panel completed its report and had a conclusion that “the baseline establishment methods contained in Part 80 of Title 40 of the Code of Federal Regulation are not consistent with Article III.4 of the General Agreement can not justified under paragraphs (b), (d), (g) of Art. XX of General Agreement” and the Panel recommended that “the DSB request the US to bring this part of the Gasoline Rule into conformity with its obligations under the General Agreement”. After that the US appealed and the Appellate Body (AB) was set up. On 20th May 1996, the DSB adopted the report and the result was the same as the first one. Finally, on 20th August 1997, after 15 months the US had to implement the solution and changed the unfair rules with imported gasoline to have the same standard as domestically. Actually, accepting the failure in the dispute and having to change regulations of the US established that was really a huge improvement of the WTO’s DS in comparison with GATT’s. Normally, in GATT, most developing countries and small nations used to have little right in such cases, so the winning chance in the dispute was difficult, though they were right. Thus, with many improvements of the WTO in the DSB help the weaker parties confidently bring their problems to the WTO to achieve right and fair decisions. Another lawsuit is the case of India and the United Sate of America in respect to rule of preventing dumping imported steel from India. According to India’s argument, their production met the US’s requirements but they were applied additional import tax which created obstacle to meet the US’s demand. They violated with Article 6, 10 of GATT 1994 and Article 18 of WTO. Thus, after investing time, the WTO’s Dispute Solution Board had a report and the US had to give out these inappropriate regulations. Finally, the two countries reached agreements which generated equal for both sides India and the US.

Although the improvement of the WTO’s DS brings many benefits and opportunities for weaker nations or developing countries in international trade, the most important of the USB is the equal trade regardless of large or small, rich or poor and developed or developing countries. For example, Japan, the United Sates and the European Communities complained Indonesia in respect to the “Certain measure affecting the Automobile industry”. They contended that Indonesia violated the Articles I and III of GATT 1994, Article 2 of the Trade – Related Investment Measure (TRIMs) Agreement and Article 3 of the SCM Agreement. The last decision of the Panel was that Indonesia was in violation of some the Articles of the Agreements. Therefore Indonesia had to issue a new automotive policy which complied with the recommendation of the DSB.

In conclusion, clearly the establishment of the WTO introduced a dramatically improvement in comparison with GATT in international trade’s regulations. Actually, the role of the WTO is “hard to underestimate” as the director – general Pascal Lamy said. Specially, it is effectiveness of the DSB of the WTO. With many changes in operation principles, many disputes were resolve from 1994 up till now. Unlike GATT’s DS, the WTO’s is a place where all members can bring their dispute to resolve based on the WTO’s agreements, where any member can get protection if they are right regardless of differences of all members. All the improvements are the reason why the WTO has the most members with 153 countries and many nations in negotiation rounds.