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Meaning, Objectives, Functions/Role, Benefits of WTO, Criticism Against WTO - World Trade Organisation (WTO) | 11th Commerce : Chapter 27 : Facilitators of International Business

Chapter: 11th Commerce : Chapter 27 : Facilitators of International Business

World Trade Organisation (WTO)

The World Trade Organisation (WTO) was estabilished on 1st January 1995.

World Trade Organisation (WTO)

International business involved complex issues among various  countries  way  back in 1950’s. A keen need  then  was felt to establish separate mechanism for regulating and controlling trade relation across the countries around the world. As a result, the General Agreement on Tariffs and Trade. (GATT) was signed at Geneva on 30th October 1947 by  23  countries.  It came into effect on 1st January 1948. GATT was a multilateral treaty. It laid down rules and regulations for conducting international trade. GATT achieved many success but various countries felt the need to create a  new international body  to replace the GATT. The GATT which remained in force from 1948 to 1994 thus came to an end with the establishment of World Trade Organisation (WTO) on 1st January 1995.



The World Trade Organisation (WTO) was estabilished on 1st January 1995. The GATT was renamed as WTO with some changes. WTO has 164 member countries as on 29th July 2016 . India is one of the three founder members. The ministerial conference consisting of the representatives of all the member countries is the highest decision- making authority of WTO. It meets almost once in every three years. It is empowered to take decisions on all vital matters under the multilateral trade agreements. The day- today work of WTO has been entrusted to the General Council. WTO is located at Geneva (Switzerland)


Objectives of WTO

The objectives of WTO include the following.

·           Improving the standard of living of people in member countries

·           Making optimum utilization of world’s resources for sustainable development of member countries.

·           Promoting an integrated more viable and durable trading system in the sphere of international business

·           Expansion of trade in goods and services

·           Ensuring full employment and large steady growth volume of real income and effective demand

·           Protecting the environment


Functions/Role of WTO

WTO performs the following functions

·           It is a forum for negotiation and formalization of trade agreement among the member countries.

·           It settles disputes and grievances relating to trade among the member countries.

·           It frames commonly  acceptable  code of conduct in order to reduce trade barriers.

·           It holds consultations with IMF and World Bank(IBRD) and its affiliates to bring about a greater understanding and co-operation in global economic policy making.

·           It supervises the operations of agreement relating to General Agreement on Tariffs and Trade(GATT) and Trade-Related Intellectual Properties Rights (TRIPS)

·           It regulates trade between participating countries.


Benefits of WTO

Some of the major benefits of WTO are as follows.

1.        WTO is promoting international peace and creating a conducive environment for conducting international trade

2.        It settles the trade disputes amicably among the member countries.

3.        It promotes the standard of living of people by increasing their income level from free trades

4.        WTO has removed quantitative restrictions and non-tariff barriers. It  has facilitated free flow of foreign trade among the member countries. The countries can impose import restrictions only to correct balance of payments difficulties and not otherwise.

5.        It stimulates economic growth of developing countries by providing them with much needed capital and giving them preferential treatment in trade related matters.

6.        WTO organizes periodical regional and international conference. Thus developing countries get opportunity to learn the technicalities, rules and regulations governing world trade, technical assistance available globally, trade  potentials in member countries and so on.

7.        WTO gives people across the world a wider choice of goods and broader range of qualities of goods to choose from by promoting free trade among the member countries.

8.        WTO has lowered trade barriers and thereby allowed trade  to  flourish across the world. The increase in trade contributes to increase in national income and personal income of people

9.        WTO provides a platform for member countries to establish trade links with one another. In the absence of WTO member countries may have to enter many multilateral agreement with so many countries across the world. It provides a greater access to all nations under one roof.

10.   WTO is committed to protecting free trade. It has framed rules on subsidies and dumping.


Criticism Against WTO

The following criticisms are levelled against WTO

i. Free Trade Benefits Developed Countries more than Developing Countries

Developing countries need some sort of trade protection to develop their new industries. Many developed countries had once used this protection to nurture their infant industries in their development stage. In this context prevention of developing countries from defending their infant industries altogether through restriction is unfair. It is suspected to be a conspiracy to indirectly favour MNC’s.

ii. Most Favoured Nation Principles

This is the core of WTO rules. Under this rule member countries are advised not to discriminate among the home enterprises, multi-nationals  and  foreign  enterprises. In other words WTO prevents developing countries from favouring their emerging companies. This move  is  supposed  to give unfair advantage to multinational companies.

iii. Failure to Reduce Tariffs on Agriculture

WTO failed to convince the USA and European Unions to eliminate high  tariff on agriculture . In other words it defends high tariff on agriculture in USA and EU. This would undoubtedly hurt the farmers in developing countries.

iv. Neglect of Farmers Interest in Developing Countries

Developing Countries specialize in producingprimaryproducts. i.e. agricultural products. They need some sort of protection to diversify into other sectors of the economy at least in the short term. Many developed nations used this tariff protection in the process of their development . In this context WTO is criticised for being unfair and neglecting the interest of farmers in developing countries.

v. Neglect Environmental Considerations

WTO encourages import from certain countries which produce  the  product  on  a larger scale at the cost of environment. WTO pushes for achieving increase in GDP without any regard for environment. In the current environment of global warming  and ever increasing  environmental  disaster, utmost priority given by WTO on maximizing GDP at the cost of environment is misplaced.

vi. Neglect of Cultural and Social Factors

WTO is criticized for promoting the domination of multinational companies whicharefearedtoeliminatelocalenterprises from business world altogether. The growth of MNC’s is feared to ruin cultural diversity of many developing countries.

vii. Inability of People in Developing Countries to Buy Life Saving Drugs

WTO defends trade related intellectual property rights which allow the firm to protect the patent and copy right. This protection particularly in the area of manufacturing of drugs is supposed to escalate the price of essential and life saving drugs. As a result people of developing countries may not be able to buy costly drugs at affordable price.


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11th Commerce : Chapter 27 : Facilitators of International Business : World Trade Organisation (WTO) | Meaning, Objectives, Functions/Role, Benefits of WTO, Criticism Against WTO

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