The World Trade Organization and United States Trade Policy

Fact Sheet prepared by the Bureau of Economic and Business Affairs and released by the Bureau of Public Affairs, June 14, 1996.

The World Trade Organization (WTO), established in Geneva, Switzerland on January 1, 1995, is the legal and institutional foundation of the multilateral trading system and one of the principal results of the Uruguay Round trade negotiations. The WTO has three principal functions:

  • To provide a forum for negotiations to liberalize the trading system and to open national markets progressively;
  • To oversee and enforce rules for the conduct of trade relations among most of the countries of the world; and
  • To provide a mechanism for members to resolve trade disputes arising in areas covered by the WTO agreements.

As of June 1996, 120 economies are members of the WTO and an additional 30 are in the process of accession.

The WTO is the successor to the General Agreement on Tariffs and Trade (GATT), the arrangement that had served as the basis for international trade since 1948. The agreement establishing the WTO encompasses the existing GATT structure and extends it to new disciplines that were not covered in the past. The WTO agreement brings together under one institutional umbrella disciplines on government practices affecting trade in goods (the General Agreement on Tariffs and Trade 1994), trade in services (the General Agreement on Trade in Services), and the protection of intellectual property rights (the Agreement on Trade-Related Aspects of Intellectual Property Rights).

In addition to these main areas, associated multilateral agreements provide specific disciplines in the areas of agriculture, textiles and clothing, safeguards, antidumping, subsidies and countervailing measures, trade-related investment measures, balance of payments, import licensing procedures, customs valuation, pre-shipment inspection, rules of origin, technical barriers to trade, sanitary and phytosanitary measures, and regional integration. The WTO agreement also includes a work program on trade and environment to ensure the responsiveness of the multilateral trading system to environmental objectives.

The WTO agreement extends and clarifies GATT dispute settlement procedures. All of the Uruguay Round agreements are now subject to a single dispute settlement system. The agreement also formalized a mechanism to provide periodic reviews of member countries' trade and economic policies having a bearing on the international trading environment. In addition, members may choose to accede to several further agreements--referred to as "plurilateral" --covering the areas of government procurement, civil aviation, and trade in dairy and bovine meat products.

The WTO system is available only to countries that agree to accept the obligations of the Uruguay Round multilateral agreements and ministerial decisions and declarations and that submit schedules of market access commitments for industrial goods, agricultural goods, and services. Under the WTO, members must apply certain basic principles to trade with other members. These principles include:

  • Most-favored-nation treatment--Members must provide to all WTO members the most favorable treatment with respect to tariffs and related matters granted to any trading partner.
  • National treatment--Imported goods must receive treatment equal to that accorded domestic goods in domestic markets.
  • Protection through tariffs--The use of quantitative restrictions (such as quotas) is generally no longer allowed.
  • Dispute settlement--Members may challenge trade actions of other members that may be inconsistent with the WTO agreements.

In joining the WTO, a member agrees to the definitive application of the obligations of the Uruguay Round multilateral trade agreements. The WTO agreement allows some exceptions to these rules, for instance for preferential treatment of customs unions and free-trade areas. It also provides transition periods to allow developing countries and countries in transition to market economies to adjust to the more difficult provisions. The agreement does not permit non-application for specific sectors. Members can elect not to apply the entire WTO to a new member at the time of accession.

How the WTO Is Organized

The WTO is located in Geneva. It has a staff of about 450 and is headed by Director-General Renato Ruggiero and four deputies. The highest WTO authority is the Ministerial Conference, which meets at least every two years. The WTO's General Council delegates responsibility to three other councils--the Councils for Trade in Goods, Trade in Services, and Trade-Related Aspects of Intellectual Property Rights.

Three committees have been established by the Ministerial Conference and report to the General Council: the Committees on Trade and Development; Balance of Payments; and Budget, Finance, and Administration. The General Council also formally established, in early 1995, a Committee on Trade and the Environment. Each of the plurilateral agreements of the WTO (civil aircraft, government procurement, dairy products, and bovine meat) has its own management body which reports to the General Council.

Ongoing Activities

The establishment of the WTO at the beginning of 1995 was the first major task laid out in the Uruguay Round Final Act. Many other tasks remain, although it is still too early to assess overall implementation. Most GATT members have completed their accession procedures for the WTO; they are proceeding to implement tariff concessions and are carrying out other commitments as agreed at the April 1994 ministerial meeting in Marrakesh, Morocco, which concluded the Uruguay Round.

At the same time, WTO members are working to ensure progress in certain key areas. The multilateral Agreement on Trade-Related Aspects of Intellectual Property Rights and the plurilateral Agreement on Government Procurement, for instance, took effect at the beginning of 1996. Dispute settlement procedures appear to be working smoothly. Although negotiations on basic telecommunications services did not result in an agreement by April 1996, they have been extended until February 1997. In addition, work continues on the applications of 30 non-members--including China, Taiwan, and Russia--to accede to the WTO.

Preparation has also begun for the first WTO Ministerial Conference, scheduled for December 9-13, 1996, in Singapore. The conference will focus on consolidating the outcome of the Uruguay Round, reviewing work on remaining issues that were agreed at Marrakesh, and possibly approving a package of additional market access gains affecting information technology and certain other products. Progress in the Committee on Trade and Environment in promoting sustainable development in the context of trade liberalization will also be reviewed. Ministers may also consider the incorporation of several emerging issues into the WTO agenda, such as the relationship between trade and labor standards, trade and competition policy, and trade and investment. The United States--in conjunction with the EU, Japan, and Canada--has also proposed discussion of an interim arrangement (outside of the existing plurilateral Agreement on Government Procurement) on transparency, openness, and due process in government procurement.

WTO Benefits to the U.S. Economy

By reducing barriers to global commerce, the agreement establishing the WTO expands U.S. trade opportunities and increases U.S. economic competitiveness and thus can help generate higher real wages and living standards for Americans.

Exports. Exports of goods and services have been steadily rising as a share of the U.S. economy's total output. An increase in U.S. export opportunities helps stimulate greater capital investment, technological innovation, higher productivity, job growth, and rising living standards.

Export growth is important not only for U.S. export producers but also for U.S. industries which provide the intermediate and capital goods used by producers of exports as well as the U.S. firms and workers supporting the export process. A large and growing share of the U.S. work force depends on U.S. exports for employment. By the end of 1995, the jobs of 11 million U.S. workers were supported by U.S. exports, an increase of 53% from 7.2 million in 1990. Jobs in export-related industries pay wages that average 15% higher than the average non-trade wage.

Imports. The substantial reductions in trade barriers negotiated in the Uruguay Round will result in lower prices for imported intermediate and final products and a greater variety of goods for American consumers. Competition in the U.S. market from increased imports stimulates U.S. industries to improve their productivity, quality, and technology; this can benefit both the producing firms and U.S. consumers who buy their goods at reduced prices. At the same time, WTO rules permit the U.S. to remedy situations where unfairly traded imports have harmed competing U.S. industries.

U.S. Trade Policy

U.S. trade policy aims to raise standards of living in the U.S. and around the world. Trade accounts for 30% of the U.S. gross domestic product; for many nations, the figure is much higher. In a changing and more interdependent world, the key to prosperity and improved living standards is engagement and competition rather than withdrawal and protectionism. The Clinton Administration is committed to harnessing the forces of change for the benefit of all Americans and the people of all nations through reducing trade barriers and promoting sustainable development.

When the General Agreement on Tariffs and Trade was established in 1948, it dealt only with tariffs. Through eight rounds of trade negotiations, the U.S. successfully reduced the average U.S. tariff from more than 35% to 3.5%. But significant barriers remained in 1979 at the end of the Tokyo Round, especially with regard to agricultural exports, and areas such as services and intellectual property rights were not covered. Consequently, in the Uruguay Round, the U.S. began to address non-tariff barriers to global trade and has been successful in establishing new rules in these areas.

Opening new markets is critical to fostering global growth and creating jobs both in the United States and abroad. But sustainable development also is important to such growth, and it has both environmental and social dimensions. As President Clinton cautioned in January 1994:

"While we continue to tear down anti-competitive practices and other barriers to trade, we simply have to ensure that our economic policies also protect the environment and the well-being of workers."

More nations are recognizing that economic growth must occur at a rate that the environment can sustain. The U.S. strongly favored the establishment of the WTO's Committee on Trade and Environment to discuss, inter alia, the environmental aspects of sustainable development.

Another dimension of sustainable development is that a rise in productivity should occur in tandem with the growth of middle classes, the rise in standards of living, and the affirmation of internationally recognized core labor standards. These core labor standards include freedom of association, freedom to bargain collectively, freedom from forced or compulsory labor, an end to child labor exploitation, and non-discrimination in employment.