Functions of World Trade Organization (WTO) | RBI Grade-B Phase 2

The World Trade Organization is the only organization at the international level that regulates and monitors trade among participating countries. It sets the rules and regulations for world trade. In the post-globalization era, with an increase in global trade, the need for a non-biased trade regulating body at the international level was sought. Established on January 1, 1995, under the Marrakesh Agreement, the World Trade Organization fulfilled that need.

History of WTO

The World Trade Organization replaced the General Agreement on Tariffs and Trade (GATT), which was signed at an international conference in Geneva in October, 1947. The original intention was to form a third institution that will deal with the trade side of international economic cooperation, while bridging the two “Bretton Woods” institutions, namely, the World Bank and the International Monetary Fund. The Bretton Woods Conference was a gathering of delegates from 44 nations that was held from July 1 to 22, 1944 in Bretton Woods, New Hampshire. The objective was to draw up, and decide upon, a set of new rules for the post-WWII international monetary system.

GATT was created with the expectation that it would soon be replaced by a specialized United Nations agency named the International Trade Organization (ITO). The plan was to create the ITO at a UN Conference on Trade and Employment in Havana in 1947. The Havana Charter included extensive rules governing trade, investment, services, and business and employment practices. However, it never came into force primarily because in 1950, the U.S. government made an announcement that it would not be seeking the Senate’s ratification of the Charter. As a result, the ITO never came into existence.

Meanwhile, 23 countries signed an agreement that came into force on January 1, 1948, and came to be known as the General Agreements on Tariffs and Trade (GATT). It served majorly two purposes - phasing out the use of import quotas and reducing tariffs on merchandise trade.

From 1948 to 1995, till the formation of the WTO, GATT was the only multilateral organization that dealt with trade regulation among participating countries.

The Uruguay Round of GATT that was held from 1986 to 1994 culminated in the formation of the World Trade Organization (WTO) under the Marrakesh Agreement. The WTO incorporates all the principles of GATT; and provides an even more strong institutional framework for implementation and of the principles of GATT.

Why WTO replaced GATT?

GATT was replaced by the World Trade Organization in 1995. Some of the important reasons were:

  • Driven by rules and multilateral agreements, GATT lacked the institutional structure which is why it was necessary to replace it with a more formal structural organization.
  • Trade of services and IPR (Intellectual Property Rights) were not governed by GATT rules and regulations.
  • The dispute settlement mechanism offered by GATT was not robust enough to deal with disputes.

Functions of WTO

Following are the functions of the World Trade Organization:

  • Operating under the principle of non-discrimination, WTO lowers the trade barriers across countries to regulate trade through negotiations. It results in lower cost of production which leads to lower cost of finished goods thereby reducing the cost of living.
  • WTO functions as a negotiator between countries by making rules that are acceptable to all. Further, it also provides a dispute resolution channel between countries.
  • It cuts the cost of doing business internationally; and also stimulates economic growth and development. 
  • WTO encourages good governance by encouraging transparency in trade transactions.
  • It helps developing countries foster their economies by providing a level playing field for developing trade relations across countries.

This was a brief overview of WTO. You need to study this topic at length to answer the questions that are asked in the RBI Grade B-Main exam. Also, keep a tab on the recent developments to supplement your knowledge for the interview.

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