What Is The World Trade Organization?

The WTO has been termed a Mercedes Benz without gas." (Ostry 1997, 202)

The World Trade Organization (WTO) is the only international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.

“The World Trade Organization (WTO) was established in 1995, under the GATT when followed by the Uruguay Round of negotiations. It said the WTO’s mandate was “the crossing of an important threshold in international trade relations". In 1994 WTO renewed and incorporated the GATT negotiations, but in itself is a new legal entity that is a formal intergovernmental agreement with the status of an international treaty". The WTO comprises some 60 agreements, annexes, decisions and understandings. It covers six main areas within its institutional scope:

the umbrella Agreement Establishing the WTO, which specifies its mandate; governance of trade in


services, and

intellectual property;

dispute settlement; and

trade policy reviews

WTO was designed to enhance the transparency of member governments’ trade policies. Moreover the agreements were linked with a single undertaking requiring its members to agree fully with agreements resulted in the Uruguay Round.

The impact of the WTO on international trade

In doing so, it addresses three particular questions.

First, how does membership in the WTO affect international trade?

In essence it says that whether its rules and global trade governance body have paid off, especially for those countries that successfully gone through the exhaustive and complex process of WTO accession, keeping them distinctive then those countries that remain outside the regime.

The second question is closely related to first question which is whether the WTO has successfully expanded trade among countries that become members.

This issue highlights that to what extent trade creation comes with WTO membership. The WTO was planned to expand trade through trade liberalization and reducing trade barriers.

And finally, how do the GATT and the WTO compare in terms of their impact on international trade?

Effects on International Trade

It is found among current studies, that overall, trade “cannot be dependably linked" to GATT/WTO membership. It is found on close examination that, when GATT members are divided into two categories of countries i.e. industrial and non-industrial, GATT has significant effect on trade between the former. The GATT expanded trade among industrial countries but had little impact on trade between non-industrial countries. In spite of the “enabling clause," or the special and differential treatment accorded to the developing countries within the GATT regime.

The unequal effect of GATT on trade flow is because of the exclusion of agriculture from the GATT regime, the formulation of special rules for labor-intensive industries like textiles the import-substituting industrialization policies of LDCs. People from different school of thought argue that the GATT extended rights and obligations to countries who were not formal members of the regime. They say that inclusive of these members with “institutional standing," the GATT considerably abetted trade expansion in the post-World War II period, this lead to development to further arguments in two (2) ways. First, it focuses specifically on the impact of the WTO. Establishment of the formal organization helps govern trade and covering vast issues which are now covered und the regime. Now the question arises about its consequences related to trade between members both new and old. Second it’s about particular in examining how developing countries have charged under the regime, differentiated by membership of their timing. The categorization of being “standing members," “early adopters," and “later entrants" is because of the increasingly complexity. Under previous GATT regime trade negotiation rounds emphasized the diminution of barriers at the border just because members bargained over tariff rates and relatively less attention was directed toward compatibility of domestic laws with WTO agreements.



Pakistan is a diverse economy dominated by public sector of major sectors but this is changing rapidly under free market agenda of WTO, which is role of government is minimum under globalization policies. While the increasing awareness between the intelligentsia of the country related to the core issues of development are not being address properly still we have seen the growing role of institutions of globalization mentoring the economic course of the country. Considering the problems; political instability, state of war with India, economic sanctions imposed on Pakistan in 1998 and most importantly 11th September crisis has not been able to obstruct country. When many Asian countries were going through negative growth Pakistan’s Economic growth remained mixed. Government of Pakistan took many initiatives to boost economy which include tax reforms, privatization, financial reforms and poverty alleviation program. It has been observed that focus have been on export let to economic growth and for that matter the government tried an intensive program to increase the capacity of key economic sectors such as Agriculture and Textiles. Information technology has become the most important sector because it revolutionized modern business and becoming more sophisticated leading to greater access to local exporter of foreign markets. http://www.pakistaneconomist.com


WTO demands that there should be no discrimination for open market access of foreign goods and services in the local market creating tariff or non-tariff barriers. Pakistan is also required to provide a Most Favored Nation (MFN) status to all trading partners this means no discrimination among the members on trade. Taking an example if Pakistan provides MFN status to India providing equal status to all imports from India, this restricts Pakistan to impose any kind of qualitative or quantitative restrictions on Indian products. Now the question arises, that why like India Pakistan is not responding to given the same MFN status? The main reason is that the total GDP of Pakistan is $ 60 billion and if India can subsidize all its imports of an equal amount this will create complete mayhem for the local Pakistani industry. GATT requires all countries to reduce their respect rates to a given limit and WTO provides preferential treatment to the developing countries by giving them flexibility to adjust trade liberalization system. On real grounds this is not the case in context of Pakistan under IMF conditionality and structural adjustment program Pakistan has to reduce its tariff from 65% to 30% gradually, and the same is required by WTO. In case of WTO negotiation among parties is with mutual consent to determine tariff bind and rates but under IMF it is more enforcement of the loan requirements.

When it comes to dispute settlement case is to be presented to the Dispute Settlement Body of WTO. This means preparing the case in context of WTO rules and legalities. A developing country like Pakistan is usually trapped to pay heavy foreign exchange to international lawyers, which is nearly unaffordable; this is because a country like Pakistan does not have ample resources and know how about the subject of WTO rules and references. An ideal example relate to this is of Basmitti Rice, initially patented by a U.S. firm has been challenged by India, where Dispute Settlement Body favored India. India having the sole patents refrain all Pakistani rice exports to be referred as "Basmitti" until the patents rights are paid for.

Advantages of WTO

WTO gives a proper platform for all countries to trade in a business enviroment with minimum barriers, hence increasing the overall trade opportunities accross the world. Having an organization managing international trade is a good sign to encourage new entrants which can act as a source of guidance for them.

Disadvantages of WTO

With the implementation of WTO and its advantages comes draw backs as well as it is very attracticve with strong developed economies which have the knowlodge and resources to produce good quality good at low price where as underdeveloped economies whose only defence against such strong economies was trade barriers such as tariffs are now in great danger as they are facing the competition from international goods locally.


The WTO act fundamentally democratic

The policies of the WTO impact should aspects society and the planet. The WTO rules are written by and for corporations with inside access to the negotiations. Citizen input by consumer, environmental, human rights and labor organizations may also be included.

The WTO focus more on Labor and Human Rights

It’s an impression that WTO rules put the "rights" of corporations to profit over human and labor rights. WTO can shape itself in a different and more positive way by focusing on these issues, it will foster the agenda of WTO. This will impact international trade positively.

The WTO polices should be flexible enough for Local Level Decision-Making and National Sovereignty

The WTO's "most favored nation" provision requires all WTO member countries to treat each other equally and to treat all corporations from these countries equally regardless of their track record. Many countries are even changing their laws and constitutions in anticipation of potential future WTO rulings and negotiations. This situation maybe improved and more friendly policies may be initiated to improve international trade with great deal.

It is highly recommended that WTO equally treat Small Countries and Rich Powerful Nations

The WTO should operate on a consensus basis, with equal decision-making power for all. Personnel form small countries should also be invited to participate and give their input in the negotiations. This will help poor countries to represent their interest and it will bridge the gap between developed and underdeveloped nations and trade relations.


WTO is an emergent fore in today’s world having different roles. Those include trade agreements, assistance to developing countries, and settling disputes these are few roles that the WTO plays to ensure the member countries are able to perform functions effectively and efficiently in the world of global trade. WTO provides structured system ensuring smooth functioning of global trade. Certainly, the WTO has its opponents who fervently oppose the institution. Moreover some members are benefiting more from the WTO than others. The industrialized countries seem to be flourishing in global trade through the WTO but others, appears to be exploited by the WTO. Since it has only been functioning in the capacity that it does today since 1995, it is too early to say whether or not the WTO will be beneficial to global trade; the world simply has to watch and wait.


Gallagher, P 2005, The First Ten Year Of The WTO 1st Edition.