6

BERNARD HOEKMAN

Since 1947, the GATT has been the major focal point for industrial country governments seeking to lower trade barriers.
Although the GATT was initially largely limited to a tariff agreement, over time, as average tariff levels fell, it increasingly came to concentrate on nontariff trade policies and domestic policies having an impact on trade. (See the Glossary to this volume for a list of trade-related policies used by countries.) Its success was reflected in a steady expansion in the number of contracting parties. By the end of the Uruguay
Round (1994), 128 countries had joined the GATT.
Since the entry into force of the WTO, membership has grown to 144, as of the end of 2001.
The WTO differs in a number of important respects from the GATT. The GATT was a rather flexible institution; bargaining and deal-making lay at its core, with significant opportunities for countries to “opt out” of specific disciplines. In contrast,
WTO rules apply to all members, who are subject to binding dispute settlement procedures. This is attractive to groups seeking to introduce multilateral disciplines on a variety of subjects, ranging from the environment and labor standards to competition and investment policies to animal rights. But it is a source of concern to groups that perceive the
(proposed) multilateral rules to be inappropriate or worry that the adoption of specific rules may affect detrimentally the ability of governments to regulate domestic activities and deal with market failures.
The main function of the WTO is as a forum for international cooperation on trade-related policies—the creation of codes of conduct for member

The WTO:
Functions and
Basic Principles

T

he WTO, established in 1995, administers the trade agreements negotiated by its members, in particular the General Agreement on Tariffs and Trade (GATT), the General
Agreement on Trade in Services (GATS), and the
Trade-Related Aspects of Intellectual Property
Rights (TRIPS) agreement. (These and other major
WTO agreements are contained in the CD-ROM
“Applied Trade Policy,” which is included with this
Handbook.) The WTO builds on the organizational structure that had developed under GATT auspices as of the early 1990s.
The origins of the GATT were in the abortive negotiations to create an International Trade Organization (ITO) following World War II. Negotiations on the charter of such an organization were concluded successfully in Havana in 1948, but the talks did not lead to the establishment of the ITO because the U.S. Congress was expected to refuse to ratify the agreement. Meanwhile, the GATT was negotiated in
1947 by 23 countries—12 industrial and 11 developing—before the ITO negotiations were concluded.1
As the ITO never came into being, the GATT was the only concrete result of the negotiations.

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governments. These codes emerge from the exchange of trade policy commitments in periodic negotiations. The WTO can be seen as a market in the sense that countries come together to exchange market access commitments on a reciprocal basis. It is, in fact, a barter market. In contrast to the markets one finds in city squares, countries do not have access to a medium of exchange: they do not have money with which to buy, and against which to sell, trade policies. Instead they have to exchange apples for oranges: for example, tariff reductions on iron for foreign market access commitments regarding cloth. This makes the trade policy market less efficient than one in which money can be used, and it is one of the reasons that WTO negotiations can be a tortuous process. One result of the market exchange is the development of codes of conduct. The WTO contains a set of specific legal obligations regulating trade policies of member states, and these are embodied in the GATT, the GATS, and the TRIPS agreement. Basic Principles
The WTO establishes a framework for trade policies; it does not define or specify