The World Trade Organization: Background and Issues

Order Code 98-928 E

CRS Report for Congress

Received through the CRS Web

The World Trade Organization:

Background and Issues

Updated March 5, 2003

Lenore Sek

Specialist in International Trade and Finance

Foreign Affairs, Defense, and Trade Division

Congressional Research Service ˜ The Library of Congress

The World Trade Organization: Background and Issues

Summary

The World Trade Organization (WTO) was established on January 1, 1995,

under an agreement reached during the Uruguay Round of multilateral trade

negotiations. The Uruguay Round was the last of a series of periodic trade

negotiations held under the auspices of the WTO’s predecessor, the General

Agreement on Tariffs and Trade (GATT).

The WTO is the most important international organization that governs world

trade. It has 145 members and 31 observer governments (most of which have applied

for membership), and members represent over 95% of world trade. Agreements

administered by the WTO cover a broad range of goods and services trade and apply

to virtually all government practices that directly relate to trade, for example tariffs,

subsidies, government procurement, and trade-related intellectual property rights.

Coverage of the agreements is growing through negotiation.

The WTO continues to apply many of the principles that were included

originally in the GATT. One of these principles is most-favored-nation treatment,

which states that any advantage given by one member country to a product of another

member must also be extended unconditionally to a like product of any other

member. Another principle is national treatment, which requires that countries must

treat imports no worse than domestic products. Countries also commit to open

information on rules and regulations, negotiated limits on trade barriers, and

settlement of disputes under specific procedures.

Several bodies in the WTO administer the agreements reached during the

Uruguay Round. The highest level body is the Ministerial Conference, which is the

group of trade ministers from member countries. The Ministerial Conference meets

at least every two years. The General Council is the body that oversees the day-today operations of the WTO. Each member country has a representative on the

General Council. The Council also meets in two other capacities: it reviews national

trade policies, and it oversees the dispute settlement process. Three major bodies

under the General Council administer rules on (1) trade in goods, (2) trade in

services, and (3) trade-related aspects of intellectual property rights (copyrights,

trademarks, and patents). Also under the General Council are numerous committees

and working groups.

Among the questions asked during debate on U.S. trade policy and the WTO

are: To what extent should the United States meet its trade goals in the WTO versus

other options? Can the United States maintain its sovereignty as a member of the

WTO? Are U.S. interests served through the WTO dispute process? Should the

WTO continue to cover traditional trade issues only, or should it be broadened to

include nontraditional issues such as labor and the environment? What is the role

of Congress in U.S. participation in the WTO?

Contents

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

The World Trade Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Appendix 1. WTO Members (as of March 5, 2003) . . . . . . . . . . . . . . . . . . . . . . . 8

Appendix 2. WTO Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

The World Trade Organization:

Background and Issues

Background

Following World War II, nations throughout the world, led by the United States

and several other developed countries, sought to establish an open and

nondiscriminatory trading system with the goal of raising the economic well-being

of all countries. Aware of the role of trade barriers in contributing to the economic

depression in the 1930s, and the military aggression that rose following the

depression, the countries that met to discuss the new trading system saw open trade

as essential for economic stability and peace.

The intent of these negotiators was to establish an International Trade

Organization (ITO), which would address not only trade barriers but other issues

indirectly related to trade, including employment, investment, restrictive business

practices, and commodity agreements. The ITO was to be a United Nations

specialized agency, but the ITO treaty was not approved by the United States and a

few other signatories and never went into effect. Instead, a provisional agreement on

tariffs and trade rules, called the General Agreement on Tariffs and Trade (GATT)

was reached and went into effect in 1948. This provisional GATT became the

principal set of rules governing international trade for the next 47 years.

The GATT document established trade principles that continue to be applied

today. Among the most important of these principles was nondiscrimination with

regard to the treatment of trade in goods among countries. The most-favored-nation

principle, which was Article I of the GATT, states that any advantage given by a

contracting party to a product of another country must be extended unconditionally

to a like product of all other contracting parties. A second rule of nondiscrimination

was national treatment, which said that imported and domestic goods should be

treated equally. Although nondiscrimination was a cornerstone of the GATT, some

exceptions were allowed. For example customs unions, free-trade areas, and special

treatment for developing countries were permitted.

Another principle was the open and fair application of any trade barriers. Tariffs

were the most common and visible form of trade barrier at the time the GATT was

established. Tariffs were to be “bound,” or set at maximum levels, and not increased

above the negotiated level. In general, quantitative restrictions such as quotas were

not allowed, since tariffs were much easier to identify and to eventually reduce.

The GATT also included a forum and process for countries to follow in trying

to resolve disputes. The dispute process allowed countries to consult with each other

CRS-2

and if that was not successful, a country could ask that a panel hear the complaint.

Although the panel’s decision was not enforceable, the panel report carried some

force of opinion and encouraged countries to work toward an agreeable resolution.

One of the GATT’s chief purposes was the reduction of barriers to trade. With

this goal in mind, GATT contracting parties met periodically to negotiate further

reduction of tariffs and other trade barriers and changes to GATT rules. These

negotiations were called “rounds.” Early rounds dealt only with tariff reductions, but

later rounds also included nontariff barriers to trade. The most recent round, the

Uruguay Round, lasted from 1986 to 1994 and included the most encompassing set

of negotiations in the history of the GATT. On the agenda was reform of the existing

GATT system, as well as expansion of rules to cover new areas such as services trade

and the trade aspects of intellectual property rights (copyrights, trademarks, and

patents). The agreements that resulted from the Uruguay Round also contained a

built-in agenda requiring that further negotiations on agriculture, services, intellectual

property rights, and government procurement begin by the year 2000.

One of the most important changes that came about from the Uruguay Round

was the establishment of a new trade structure, the World Trade Organization

(WTO), which incorporated the many changes reached during the Uruguay Round:

the former GATT with its newly negotiated reforms, bodies to oversee the new trade

issues, a stronger dispute resolution procedure, a regular review of members’ trade

policies, and many other committees and councils. In contrast to the GATT, the

WTO was created as a permanent structure, with “members” instead of “contracting

parties.” The WTO went into effect on January 1, 1995.

The World Trade Organization

There are 145 members of the WTO, representing over 95% of world trade, 31

observer governments (most of which have applied for membership in the WTO),

and seven international organization observers. (Members and observers are listed

in Appendix 1.) The WTO is located in Geneva, Switzerland. Its top official is

Director-General Supachai Panitchpakdi of Thailand, whose 3-year term began on

September 1, 2002. The WTO staff numbers about 550. Its budget for the year 2003

is 153.8 million Swiss francs, or about $111 million (1.3868 Sf = $1). Countries

contribute according to their share of world trade, based on trade in goods, services

and intellectual property rights.1

Decisions within the WTO are made by members, not staff, and they are made

by consensus, not by formal vote. The highest level body in the WTO is the

Ministerial Conference, which is the body of political representatives (trade

ministers) from each member country. (See the WTO structure in Appendix 2.) The

Ministerial Conference examines current programs and sets the agenda for future

work. It must meet at least every two years.

1

In 2003, the U.S. share is 15.9% of total contributions to the WTO budget. The

U.S. contribution is part of the Department of State budget and was $12 million in fiscal

year 2002, the most recent calculation available.

CRS-3

The first meeting of the Ministerial Conference was held in Singapore on

December 9-13, 1996. At that meeting, trade ministers reviewed the work of the

WTO, since its establishment and agreed on a work schedule for the next few years.

They also approved an action plan for least-developed countries, and many members

entered into an agreement to eliminate tariffs on information technology products by

the year 2000. The second meeting of the Ministerial Conference was held in

Geneva on May 18 and 20, 1998. Again, it reviewed the work of the WTO and

approved a future work program. It called for an examination of issues related to

global electronic commerce and started preparations for the next meeting. The third

Ministerial Conference was held in Seattle on November 29-December 3, 1999. That

meeting was intended to review an agenda for a new round of trade negotiations, but

trade ministers could not reach agreement and suspended their work. The WTO

Director-General was directed to consult with delegations and discuss ways in which

countries might bridge remaining differences. The fourth Ministerial Conference was

held in Doha, Qatar on November 9-14, 2001. At that meeting, trade ministers

agreed to launch a new round of multilateral trade negotiations, called the Doha

Development Agenda, and set a deadline for final agreements of January 1, 2005.

They established a work program for the new round and agreed to consider numerous

developing-country issues.2 The fifth Ministerial Conference is scheduled for

September 10-14, 2003, in Cancun, Mexico.

The body that oversees the day-to-day operations of the WTO is the General

Council, which consists of a representative from each member. The Council

generally meets monthly and provides a forum for countries to discuss a range of

trade matters. The U.S. delegate to the General Council is the Deputy U.S. Trade

Representative in Geneva.

The General Council also meets in two other, unique capacities. One is the

Trade Policy Review Mechanism (TPRM). The TPRM was established under the

Uruguay Round agreements to allow closer monitoring of national trade policies of

member countries. The four countries with the largest shares of world trade are

reviewed every two years, the next 16 largest traders are reviewed every four years,

and other countries are reviewed every 6 years, although least-developed countries

might be reviewed less frequently. The trade reviews provide information on a

country’s trade policies and comment on whether a country is pursuing marketopening or market-restrictive policies. This public examination is a mild form of

pressure for a country to avoid practices that discourage trade.

The General Council also meets in the capacity of the Dispute Settlement Body

(DSB). The Uruguay Round agreements greatly strengthened the process for

settlement of disputes. The first stage of the process is consultation between the

governments involved. If consultation is not successful, the complainant may ask the

DSB to establish a dispute panel. The dispute panel hears the case and reports back

to the DSB. If the complaint is upheld, the respondent must either change its practice

or negotiate an agreeable resolution. Otherwise, the complainant may request that

2

For more information on results of the Doha Ministerial Conference, see CRS Report

RL31206, The WTO Doha Ministerial: Results and Agenda for a New Round of

Negotiations, coordinated by William H. Cooper.

CRS-4

the DSB authorize suspension of obligations, thereby giving permission for the

complainant to retaliate. For example, a complainant may receive permission to

increase tariffs against a respondent country that disregards a decision by the DSB.

Permission is automatic unless unanimously disapproved. Procedures are clearly set

out with specific timetables at each stage.

More specialized work is done in three major bodies under the General Council.

One of these is the Council for Trade in Goods, under which committees work on

a number of trade areas. One committee works on trade in agriculture. Another

committee oversees the related topic of sanitary and phytosanitary measures, which

are measures that pertain respectively to animal and plant health and safety. Some

committees monitor practices that are considered “unfair” if not implemented in

accordance with WTO rules (antidumping, subsidies and countervailing measures).

Other committees examine practices that are not necessarily “unfair” but could be

trade-distorting nonetheless (rules of origin, safeguards, technical barriers, customs

valuation, and import licensing). One committee works on the relatively new area

of trade-related investment measures, and another addresses market access issues

(tariffs and nontariff measures).

Also under the Council for Trade in Goods are the Information Technology

Agreement Committee and the Textiles Monitoring Body. Before the Uruguay

Round, trade in textiles had been regulated by an extensive system of bilateral quotas

under the Multifiber Agreement, but the Uruguay Round agreement on textiles will

eventually replace the quota system with tariffs, and these tariffs will be reduced

through multilateral negotiation.

A second major body under the General Council is the Council for Trade in

Services, which oversees the Uruguay Round agreement on trade in services. The

Uruguay Round services agreement has three parts. The first part lists basic

principles that countries agree to observe, including national treatment, most-favorednation treatment, and transparency (open information about relevant laws and

regulations). The second part contains four annexes with rules on: (1) the movement

of persons who provide services, (2) financial services, (3) telecommunications, and

(4) air transport services. The third part is a schedule of country commitments.

These commitments are bound and cannot be reduced in scope, much like the tariff

levels on goods, which cannot be increased once they are bound. The service

commitments may include exceptions to the national treatment and most-favorednation principles, if countries included these exceptions when they originally

negotiated the commitments.

The Council for Trade-Related Aspects of Intellectual Property Rights

(TRIPS) is the third major body under the General Council. The TRIPS Council

monitors the agreement on intellectual property rights that was reached during the

Uruguay Round and supervises members’ compliance. The TRIPS agreement has

three parts. The first part outlines basic principles that countries must observe,

including national treatment and most-favored-nation treatment. The second part

establishes standards for the different types of intellectual property rights. For

example, it ensures copyright protection for computer programs, sets rules for rental

rights, protects integrated circuit designs and geographical indications (e.g.,

“champagne” indicates a wine from a specific region), and ensures minimum lengths

CRS-5

of time for protections. The third part of the agreement establishes enforcement

processes. Developing, transition, and least-developed countries are allowed

additional time to implement the changes.

In addition to the bodies discussed above, there are many other committees and

working groups under the General Council. For example, working groups cover the

relationship between trade and investment, the interaction between trade and

competition policy, and transparency in government procurement. Plurilateral

groups, which do not necessarily include all WTO members, deal with civil aircraft

and with government procurement. The Committee on Trade and Development often

works with other international institutions on special concerns of countries in

development. Working parties on accession meet with applicant countries to identify

changes that are necessary to bring the applicant’s trade regime into line with WTO

rules and principles. The Uruguay Round also established a committee on trade and

environment.

Policy Issues

Congressional debate involving the WTO has focused on several major issues.

These concern: (1) seeking U.S. trade goals in the WTO versus alternative means; (2)

maintaining U.S. sovereignty; (3) serving U.S. interests through the WTO dispute

process; (4) traditional versus nontraditional topics in the WTO; and (5) the

congressional role in U.S. participation in the WTO

1. To what extent should the United States seek trade goals through the

WTO versus alternative means? The WTO has many benefits for the United

States: it provides the only multilateral dispute mechanism for international trade,

administers rules to discourage discrimination, and ensures greater security on how

trade will be conducted. However, critics of the WTO charge that the WTO is slowmoving, because there are so many members with such varied national interests and

decisions are by consensus. One option is to pursue U.S. goals through another

multilateral body. For example, the United States and other (mostly developed)

countries have pursued negotiations on shipbuilding and investment in the

Organization for Economic Cooperation and Development, but with mixed success.

Another option is to pursue trade benefits through regional or bilateral agreements.

Some trade experts say that these agreements offer substantial benefits to U.S.

exporters and are easier to negotiate. Other, however, assert that regional and

bilateral agreements may distract the United States and other countries from the

possibly greater benefits from a worldwide approach.

2. Can the United States maintain its sovereignty as a member of the

WTO? Some critics of the WTO have raised the question of whether the United

States will lose its sovereignty as a member of the WTO. As a member of the WTO,

the United States does commit to act in accordance with the rules of the multilateral

body. It is legally obligated to ensure national laws do not conflict with WTO rules;

however, the WTO cannot force members to adhere to their obligations. The United

States and any other WTO member may act in its own national interest in spite of

WTO rules. The WTO even recognizes certain allowable exceptions such as national

CRS-6

security. However, any multilateral institution is only as strong as its members’

adherence to the institution’s rules. If the United States or any other member country

chooses to take unilateral action contrary to WTO rules, that action may weaken the

institution. It is a decision for U.S. policymakers whether the discipline imposed by

the WTO is an acceptable cost for the benefits of more open trade.

3. Are U.S. interests served through the WTO dispute process? The United

States realizes several benefits from the existence of a multilateral forum for trade

disputes. Such a forum in general allows countries to peacefully resolve disputes

without having to use destructive action. The WTO dispute process presents a clear,

understandable set of rules that must be followed, and the process is

nondiscriminatory among countries.3 The United States has used the process as a

complainant 68 times, and has been relatively successful in addressing foreign trade

barriers: the U.S. Trade Representative reports that of those 68 cases, 35 were either

resolved to U.S. satisfaction without litigation, or the United States was successful

in its challenge of a foreign measure.4

There have been, however, many complaints. In some cases, countries have not

adhered to dispute panels’ findings. An example is the U.S. complaint brought

against European Union (EU) trade restrictions on imports of beef produced with

hormones. Another complaint is that some cases are said to be filed for political, not

economic, reasons. For example, some analysts say that the EU took no action for

years against a U.S. tax benefit for exports, but then filed a challenge after a U.S. win

in another case. Finally, the United States as defendant has lost several cases

involving trade remedies, and this has led some Members to charge that the WTO

dispute panels are assuming too much authority in interpreting trade agreements.

4. Should the WTO cover traditional trade issues only, or should it be

broadened to include nontraditional issues such as labor and the environment?

The GATT agreement first established rules only on border measures (tariffs and

quotas) and later added rules on certain internal practices that clearly had direct

effects on trade in goods (e.g., subsidies, government procurement). The WTOadministered agreements further expanded trade rules to cover new areas such as

trade in services, but did not include rules that reached into areas that were not

directly related to trade practices. U.S. businesses generally want the WTO to refrain

from extending beyond these traditionally trade-related issues, because they argue

that the greatest export opportunities will be achieved only if negotiators focus on

trade barriers and do not include social factors.

Many groups, however, argue that the WTO should be expanded to include

nontraditional topics. Two topics that have been at the center of current trade debate

are labor and the environment. Labor groups argue that countries sometimes exploit

workers, including children, to produce low-cost products for foreign markets, and

environmental groups want more consideration of the environmental effects of the

production of goods for trade included under WTO rules. There is strong

3

For information on the WTO dispute process, see CRS Report RS20088, Dispute

Settlement in the World Trade Organization: An Overview, by Jeanne J. Grimmett.

4

U.S. Trade Representative web site at <http://www.ustr.gov/enforcement/snapshot.pdf.>

CRS-7

disagreement domestically on traditional and nontraditional topics in trade

negotiations, and internationally countries hold a wide range of positions on this

question.

5. What is the role of Congress in how the United States participates in the

WTO? Although the executive branch maintains a staff in Geneva and conducts

trade negotiations in the WTO, Congress has had an important role in how the United

States participates in the WTO through its constitutional responsibility for the

conduct of foreign commerce. In recently enacted legislation (P.L. 107-210) that

approved expedited procedures for legislation to implement trade agreements (“trade

promotion authority”), Congress prescribed trade objectives for U.S. negotiators and

required the executive branch to consult with it. After an agreement is reached, some

Members will probably work jointly with the executive branch in drafting legislation

to implement the trade agreement. Once an implementing bill has been introduced,

Congress decides whether or not to approve those legislative changes necessary to

implement the trade agreement.

The congressional role described above has evolved as one way to address the

separate constitutional authorities of the executive and legislative branches on trade

matters, but this role is continually debated and reevaluated. Many of those involved

in the debate question whether this executive-legislative relationship is still useful or

appropriate. The Administration has called for greater authority in trade negotiations,

saying that the need for repeated reauthorization of trade promotion authority

interrupts U.S. trade policy and keeps the United States from participating in trade

negotiations. However, many Members assert that Congress has given up too much

of its constitutional role and should have a stronger hand in trade policy formulation

and in oversight of trade negotiations.

CRS-8

Appendix 1. WTO Members (as of March 5, 2003)

Members

Albania

Dominican Republic

Lesotho

Saint Kitts and Nevis

Angola

Ecuador

Liechtenstein

Saint Lucia

Antigua & Barbuda

Egypt

Lithuania

Saint Vincent & the

Grenadines

Argentina

El Salvador

Luxembourg

Senegal

Armenia

Estonia

Macau

Separate Customs

Territory of Taiwan,

Penghu, Kinmen, and

Matsu

Australia

European Communities

Madagascar

Sierra Leone

Austria

Fiji

Malawi

Singapore

Bahrain

Finland

Malaysia

Slovak Republic

Bangladesh

France

Maldives

Slovenia

Barbados

Gabon

Mali

Solomon Islands

Belgium

The Gambia

Malta

South Africa

Belize

Georgia

Mauritania

Spain

Benin

Germany

Mauritius

Sri Lanka

Bolivia

Ghana

Mexico

Suriname

Botswana

Greece

Moldova

Swaziland

Brazil

Grenada

Mongolia

Sweden

Brunei Darussalam

Guatemala

Morocco

Switzerland

Bulgaria

Guinea

Mozambique

Tanzania

Burkina Faso

Guinea Bissau

Myanmar

Thailand

Burundi

Guyana

Namibia

Togo

Cameroon

Haiti

Netherlands, for the

Kingdom in Europe

and for the Netherlands

Antilles

Trinidad and Tobago

Canada

Honduras

New Zealand

Tunisia

Central Africa Republic

Hong Kong, China

Nicaragua

Turkey

Chad

Hungary

Niger

Uganda

Chile

Iceland

Nigeria

United Arab Emirates

China

India

Norway

United Kingdom

Columbia

Indonesia

Oman

United States

Congo

Ireland

Pakistan

Uruguay

CRS-9

Costa Rica

Israel

Panama

Venezuela

Cote d'Ivoire

Italy

Papua New Guinea

Zambia

Croatia

Jamaica

Paraguay

Zimbabwe

Cuba

Japan

Peru

Cyprus

Jordan

Philippines

Czech Republic

Kenya

Poland

Democratic Republic of

the Congo

Korea, Republic of

Portugal

Denmark

Kuwait

Qatar

Djibouti

Kyrgyz Republic

Romania

Dominica

Latvia

Rwanda

Observer Governments

Algeria

Former Yugoslav Republic of

Macedonia

Seychelles

Andorra

Holy See (Vatican)

Sudan

Azerbaijan

Kazakstan

Tajikistan

Bahamas

Lao People's Democratic

Republic

Tonga

Belarus

Lebanese Republic

Ukraine

Bhutan

Nepal

Uzbekistan

Bosnia and Herzegovina

Russian Federation

Vanuatu

Cambodia

Samoa

Vietnam

Cape Verde

Sao Tome and Principe

Yemen

Equatorial Guinea

Saudi Arabia

Ethiopia

Serbia and Montenegro

International Organization Observers to General Council

United Nations (UN)

Food and Agricultural Organization (FAO)

United Nations Conference on Trade and

Development (UNCTAD)

World Intellectual Property Organization

(WIPO)

International Monetary Fund (IMF)

Organization for Economic Co-operation and

Development (OECD)

World Bank

Source: World Trade Organization web page [http://www.wto.org/]

CRS-10

Appendix 2. WTO Structure

All WTO members may participate in all councils, committees, etc., except Appellate Body, Dispute

Settlement panels, Textiles Monitoring Body, and plurilateral committees. The negotiations mandated

by the Doha Declaration take place in the Trade Negotiations Committee and its subsidiaries.

Source: World Trade Organization web page at [http://www.wto.org/].