WTO agreements

How can you ensure that trade is as fair as possible, and as open as is practical? By negotiating rules and
abiding by them.

The WTO’s rules – the agreements – are the result of negotiations between the members. The current set
is largely the outcome of the 1986- 94 Uruguay Round negotiations, which included a major revision of
the original General Agreement on Tariffs and Trade (GATT).

The Uruguay Round created new rules for dealing with trade in services and intellectual property and new
procedures for dispute settlement. The complete set runs to some 30,000 pages consisting of about 30
agreements and separate commitments (called schedules) made by individual members in specific areas,
such as lower tariffs and services market-opening.

Through these agreements, WTO members operate a non- discriminatory trading system that spells out
their rights and their obligations. Each member receives guarantees that its exports will be treated fairly
and consistently in other members’ markets. Each promises to do the same for imports into its own
market. The system also gives developing economies some flexibility in implementing their
commitments.

Goods

It all began with trade in goods. From 1947 to 1994, the GATT was the forum for negotiating lower
tariffs and other trade barriers; the text of the GATT spelt out important rules, particularly non-
discrimination. Since 1995, the Marrakesh Agreement Establishing the WTO and its annexes (including
the updated GATT) has become the WTO’s umbrella agreement. It has annexes dealing with specific
sectors relating to goods, such as agriculture, and with specific issues such as product standards, subsidies
and actions taken against dumping. A recent significant addition was the Trade Facilitation Agreement,
which entered into force in 2017.

Services

Banks, insurance firms, telecommunications companies, tour operators, hotel chains and transport
companies looking to do business abroad enjoy the same principles of more open trade that originally
only applied to trade in goods. These principles appear in the General Agreement on Trade in Services
(GATS). WTO members have also made individual commitments under the GATS stating which of their
service sectors they are willing to open to foreign competition, and how open those markets are.

Intellectual property

The WTO’s Intellectual Property Agreement contains rules for trade in ideas and creativity. The rules
state how copyrights, patents, trademarks, geographical names used to identify products, industrial
designs and undisclosed information such as trade secrets – “intellectual property” – should be protected
when trade is involved.
Dispute settlement

The WTO’s procedure for resolving trade conflicts under the Dispute Settlement Understanding is vital
for enforcing the rules and therefore for ensuring that trade flows smoothly. Governments bring disputes
to the WTO if they think their rights under the WTO agreements are being infringed. Judgements by
specially appointed independent experts are based on interpretations of the agreements and individual
members' commitments. The system encourages members to settle their differences through consultation
with each other. If this proves to be unsuccessful, they can follow a stage- by-stage procedure that
includes the possibility of a ruling by a panel of experts and the chance to appeal the ruling on legal
grounds. Confidence in the system is borne out by the number of cases brought to the WTO – more than
500 cases since the WTO was established compared with the 300 disputes dealt with during the entire life
of the GATT (1947-94).

Trade monitoring

The WTO's Trade Policy Review Mechanism is designed to improve transparency, to create a greater
understanding of the trade policies adopted by WTO members and to assess their impact. Many members
see the reviews as constructive feedback on their policies. All WTO members must undergo periodic
scrutiny, each review containing reports by the member concerned and the WTO Secretariat. In addition,
the WTO undertakes regular monitoring of global trade measures. Initially launched in the wake of the
financial crisis of 2008, this global trade monitoring exercise has become a regular function of the WTO,
with the aim of highlighting WTO members' implementation of both trade- facilitating and trade-
restricting measures.

Comparative and Absolute Theory

Absolute advantage and comparative advantage are two important concepts in economics and international

trade. They largely influence how and why nations and businesses devote resources to the production of
particular goods and services. Absolute advantage describes a scenario in which one entity can manufacture a
product at a higher quality and a faster rate for a greater profit than another competing business or country
can accomplish. Comparative advantage, on the other hand, takes into consideration the opportunity costs
involved when choosing to manufacture multiple types of goods with limited resources.

Comparative advantage takes a more holistic view of production. In this case, the perspective lies in the fact
that a country or business has the resources to produce a variety of goods and services rather than focus on
just one product.

The opportunity cost of a given option is equal to the forfeited benefits that could have been achieved by
choosing an available alternative in comparison. In general, when the profit from two products is identified,
analysts would calculate the opportunity cost of choosing one option over the other.

For example, let's assume that China has enough resources to produce either smartphones or computers such
that China can produce either 10 computers or 10 smartphones. Computers generate a higher profit.
The opportunity cost is the difference in value lost from producing a smartphone rather than a computer. If
China earns $100 for a computer and $50 for a smartphone then the opportunity cost is $50. If China has to
choose between producing computers over smartphones it will probably select computers because the chance
of profit is higher.
The differentiation between the varying abilities of companies and nations to produce goods efficiently is the
basis for the concept of absolute advantage. As such, absolute advantage looks at the efficiency of producing
a single product. It also looks at how to produce goods and services at a lower cost by using fewer inputs
during the production process when compared to the competition.

This analysis helps countries avoid producing goods and services that would yield little to no demand, which
would ultimately lead to losses. A country’s absolute advantage (or disadvantage) in a particular industry can
play an important role in the types of products it chooses to produce. Some of the factors that can lead an
entity to absolute advantage include:

 Lower labor costs

 Access to an abundant supply of (natural) resources
 A larger pool of available capital

As an example, if Japan and Italy can both produce automobiles, but Italy can produce sports cars of a higher
quality and at a faster rate with greater profit, then Italy is said to have an absolute advantage in that
particular industry. On the other hand, Japan may be better served to devote limited resources and labor to
other types of vehicles (such as electric cars) or another industry altogether. This may help the country enjoy
an absolute advantage rather than trying to compete with Italy's efficiency.

Member State of WTO

As of July 2016, the WTO has 164 members. Of the 128 states party to GATT at the end of 1994, all have
since become WTO members except for the Socialist Federal Republic of Yugoslavia, which
had dissolved in 1992 and was suspended from participating in GATT at the time. Four other
states, China, Lebanon, Liberia, and Syria, were parties to GATT but subsequently withdrew from the
treaty prior to the establishment of the WTO. China and Liberia have since acceded to the WTO. The
remaining WTO members acceded after first becoming WTO observers and negotiating membership.

The 27 states of the European Union are dually represented, as the EU is a full member of the
organization. Other autonomous entities are eligible for full membership in the WTO provided that they
have a separate customs territory with full autonomy in the conduct of their external commercial
relations. Thus, Hong Kong became a GATT contracting party, by the now terminated "sponsorship"
procedure of the United Kingdom (Hong Kong uses the name "Hong Kong, China" since 1997), as
did Macao. A new member of this type is the Republic of China (Taiwan), which acceded to the WTO in
2002, and carefully crafted its application by joining under the name "Separate Customs Territory of
Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei)" so that they were not rejected as a result of
the One China principle implemented by the People's Republic of China.

The WTO also has 24 observer states, that with the exception of the Holy See must start their accession
negotiations within five years of becoming observers. The last country admitted as observer-only before
applying for full membership was Equatorial Guinea in 2002, but since 2007 it is also in full membership
negotiations. In 2007 Liberia and Comoros applied directly for full membership. Some international
intergovernmental organizations are also granted observer status to WTO bodies. The Palestinian
Authority submitted a request for WTO observer status in October 2009 and again in April 2010.

Afghanistan is the newest member, joining effective 29 July 2016

Russia was one of the only two large economies outside of the WTO after Saudi Arabia joined in 2005. It
had begun negotiating to join the WTO's predecessor in 1993. The final major point of contention—
related to the 2008 Russo-Georgian War—was solved through mediation by Switzerland, leading to
Russian membership in 2012. The other is Iran, which is an observer state and begun negotiations in
1996.