Principles on Which WTO Functions

Everybody knows WTO as that body which governs the global trade. Though it might not be because it regulates international trade only between the member states. Since there are 160 members and 95% of the world trade, it is more or less accurate that WTO is the regulator of international trade. 

WTO, as an organization, has a particular goal of freeing the trade, by reducing the trade restrictions that the states put up. It would not be wrong to say that WTO is leading the globalization.

Free trade refers to a situation where there is no state intervention in trading. There are few principles that WTO uses as its tools to reduce the restrictions on trade that the states might put up. Mainly, limits are like taxes and duties, though there are other ways as well. The member states have agreed through multilateral agreements to implement these principles.

The powers of the states to regulate international trade within their territories have to be coherent with these principles, and members can file a complaint against the other members if they feel there is a contradiction to such principles. WTO strives to work in furtherance of these principles and act in accordance as well. This is how the whole regime of trade is being governed and lead in a specific direction.

Non-Discrimination

One of the most common intentions for putting up trade barriers among the states are to favor companies and traders based in its jurisdiction. This favor in advances often puts the foreign parties at a disadvantageous position. Also, there might be some reason for a state to favor party from state A over state B.

Again, the state can create an unequal ground for the trading parties, supporting one over the other. Therefore, WTO works to establish the principle of non-discrimination, which could further be classified as follows:

  • Most Favored Nation- Popularly known as MFN, this principle lays down for no discrimination in the goods or services from two different foreign nations. This principle thus restricts a member state from putting another member state in a disadvantageous position, in comparison with the third one. Though, the applicability is not universal, meaning that a member state does not have to provide such treatment to every other member state.

    The rules advance MFN status to other countries, mostly through agreements. So, state A cannot discriminate in the treatment of goods and services of all other member states which have been advanced the status of Most Favored Nation.
     
  • National Treatment- It is used to refer a treatment imparted by a state to domestic product and foreign product simultaneously and in comparison to each other.
    Thus, a state is required to not advance favor to its local products to the disadvantage of the foreign product, but to treat the international product as it were its domestic product. This principle provides for equal treatment to household products and foreign products.

Freer trade

WTO works towards making the trade freer; freer trade refers to fewer restrictions which have to be achieved through better understandings between the member states and more agreements leading to reduction of restrictions. WTO facilitates and encourages such interactions and promotes mutual discounts on trade restrictions.

Predictability

It refers to the ability to predict the nature of the market shortly. A regulated market where risks are less, or if the risks are known, investors and traders would be more interested in working in such markets. Trade flourishes in a predictable and stable market and hence WTO encourages the states to work in the promotion of predictability of such market.

Competition

Competition among the different players in the market, as is believed in the postmodern era, leads to consumer welfare. Competition is deemed necessary in the market, and therefore, across multiple jurisdictions, there are laws regulating competition in the market.

Earlier, the objective used to be to prevent the creation of monopolies or restrictive trade practices; now, the goal is also to promote the competition in the market. 

The principle of preserving and promoting competition in the market remains as the central idea of multiple WTO policies. The laws of National Treatment and Most Favored Nation serve the purpose of ensuring fair competition among different goods and services, regardless of their nation of origin.

Encouraging development & economic reforms

As a matter of policy for WTO, it works towards promoting economic reforms in developing countries. There might be instances where developing countries might not be able to adhere to the general principals enshrined in the multilateral agreements, and therefore WTO system allows the developing countries concessions and assistance.

Thus, it not only pushes for institutional changes for economic reforms but also helps economically weaker countries to cope up with the challenges and function according to their capabilities.

Bottom Line

The world is complex and so is WTO. The ultimate goal of WTO is to help producers of goods and services, exporters, and importers conduct their business. WTO agreements are strict and should be always complied with.

For related topics and simpler information, do read our blogs.

-Akshay Mankar


Posted On: 04 Sep 2019 Home / Legal / Principles on Which WTO Functions