World Trade Organization (WTO): Functions, Objectives, Significance

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Introduction to World Trade Organization (WTO)

The World Trade Organization (WTO) is the only international organization dealing with global rules of trade between nations. An international marketer needs to develop a thorough understanding of the new opportunities opened up by multilateral trading system under the WTO regime.

In addition to this, role of various economic institutions under the aegis of the UN system such the World Bank, International monetary Fund (IMF), WIPO, UNCTAD etc. have also been phenomenal in influencing the international business scenario. The understanding of the significance and roles of this institution help the firms to develop their marketing plans for the International markets.

Significance of WTO

The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations. The goal is to help producers of goods and services, exporters, and importers conduct their business.

It came into existence on Januray 01, 1995 as a successor of General Agreements on Tariffs and Trade GATT). Its major function is to ensure smooth flow of international trade as predictably and freely as possible. Currently, WTO has membership of 164 nations. (Source: WTO)

Objectives of WTO

  • To improve standard of living of people in the member countries by ensuring full employment.

  • To ensure broad increase in effective demand.

  • To enlarge production and trade of goods and services.

  • To ensure optimum utilization of world resources.

  • To protect environment and accept the concept of sustainable development.

Functions of WTO

The basic functions of WTO are as follows:

  • It facilitates the implementation, administration and operation of the trade agreements.

  • It provides a forum for further negotiations among member countries on matters covered by the agreements and any new issue falling within its mandate.

  • It is responsible for the settlement of disputes and differences among its member countries and carry periodic reviews of the trade policies.

  • It encourages co-operation within international organizations.

Principles of Multilateral trading system under the WTO

  • Trade without discrimination-this means that a country cannot discriminate between its trading partners and its own and foreign products and services.

  • Lower trade barriers and gradual push towards freer markets through negotiations.

  • Promotion of fair competition in International markets. d. Increased predictability of international Marketing environment.

Impact of WTO on Develoipng Countries

The positive impact of WTO on developing countries can be viewed from the following aspects:

  • Growth in Merchandise Exports: In developing countries like India, China, Brazil, etc., the exports have increased since the setting up of WTO.The increase in exports is due to reduction in trade barriers — tariff and non-tariff.

  • Growth in Services Exports: The WTO has also introduced an agreement on services called GATS. Under this agreement, the member nations have to liberalize the services sector.

    It provides greater market access in the service sector such as telecommunication, air transport, financial services etc. Certain developing countries like India would benefit from such an agreement.

    For instance, India’s services exports have increased from about 5 billion US $ in 1995 to 102 billion US $ in 2008- 09. The software services accounted for about 45% of the services exports of India.

  • Textiles and Clothing: It is estimated that the textiles sector has been of the major beneficiaries of the impact of Uruguay Round. At the Uruguay Round, it was agreed upon by member countries to phase out MFA (Most favoured nation) by 2005.

    Under MFA, the developed countries like France, USA, UK, Canada, etc. used to import quotas on textile exporting countries. The MFA has been withdrawn w.e.f. 1.1.2005, and therefore, it has benefited the developing countries including India by way of increase in export of textiles and clothing.

  • Benefits of TRIPs Agreement: The TRIPs agreement has benefited the developing countries like Brazil, India, China, and others. The firms in developing countries have also developed new products and got them patented.

    Developing countries have also benefited. For instance, India has obtained GIS for products like Darjeeling Tea, Neem, Goa Feni, Basmati rice and so on.

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