Trade agreements liberalize international trade. Some trade agreements create and enforce uniform trade rules for countries operating within the global trading system. Examples include the General Agreement on Tariffs and Trade and the World Trade Organization. Regional trade agreements focus on trade liberalization among a select group of nations. Examples include the European Union (EU) and North American Free Trade Agreement (NAFTA). Bilateral trade agreements between just two countries have also become more popular in recent years.

General Agreement on Tariffs and Trade

The General Agreement on Tariffs and Trade (GATT) was a multilateral agreement that established rules for international trade from 1947 to 1994. GATT's overriding goal was to promote free trade among nations. In 1947, twenty-three countries met in Geneva, Switzerland to negotiate the original set of GATT trade rules and tariff reductions for the post–World War II global trading system.[1]

The original GATT agreement became a rallying point for noncommunist countries that supported trade expansion as a way to promote economic growth and development. Under the auspices of GATT a series of eight multilateral trade negotiations took place from 1947 to 1994. These multilateral trade negotiations were called trade rounds. Early trade rounds concentrated on reducing tariffs on merchandise trade. Later trade rounds, especially the Tokyo Round (1973–1979) and the Uruguay Round (1986–1994) expanded negotiations to include trade in services and deal with issues such as unfair subsidies, dumping, and protections for intellectual property rights.[2]

GATT principles provided an anchor for the orderly expansion of international trade during the post–World War II period. One important GATT principle was most favored nation (MFN), which required that if a trade concession was granted to one trading partner, it would be automatically applied to all GATT members. A second principle, national treatment, required that foreign and domestic output be treated in a fair and equal manner within nations. In practice this meant that imported goods, once appropriate tariffs had been paid, could not be penalized through the imposition of additional taxes or regulations. A third principle, the reporting of trade barriers, supported transparency by requiring members to justify the imposition of tariffs, import quotas, or other trade restrictions.

World Trade Organization

The World Trade Organization (WTO) is an international organization that oversees the operation of the current rules-based multilateral trading system. The Treaty of Marrakesh established the WTO at the close of the Uruguay Round of trade negotiations in 1994. The WTO began operations on January 1, 1995. In July 2013 the WTO consisted of 159 member nations. The WTO's headquarters is located in Geneva, Switzerland. Its director-general is Pascal Lamy.[3]

The WTO's main function is to monitor and enforce trade rules in the global economy. The WTO administers the complex trade agreements listed in the WTO agreement. Article 1 of the WTO charter, the General Agreement on Tariffs and Trade, deals with rules of merchandise trade. Article 1 is often called GATT 1994 to distinguish it from the original GATT agreement of 1947. Article 2, the General Agreement on Trade in Services (GATS), deals with trade in commercial services. Article 4, the Agreement on Trade-Related Aspect of Intellectual Property (TRIPS), provides uniform legal protections for scientific, technological, and artistic achievements. In addition, the WTO is a forum for trade negotiations, a dispute-settlement mechanism, and a source of technical expertise on trade and development for the world's poorer countries.[4]

WTO operations are guided by six core principles. The first principle is nondiscrimination. Nondiscrimination means that all member nations enjoy most favored nation (MFN) status and that all products—foreign and domestic—receive equal treatment in nations' markets. The second principle is freer trade through the reduction of trade barriers. The third principle is predictability in trade. Predictability is enhanced by the transparency of trade rules. The fourth principle is fair competition. Fair competition reduces market distortions such as export subsidies and dumping. The fifth principle is economic development through trade, which includes certain trade preferences and trade assistance to the world's poorer countries. The sixth principle is environmental protection, which includes protections for the health and safety of life on the planet.[5]

The WTO's dispute settlement process represents the enforcement arm of the organization. This process enables member nations to bring formal trade grievances against one

Multilateral and bilateral trade agreements encourage regional specialization and international trade

Multilateral and bilateral trade agreements encourage regional specialization and international trade. (Byvalet)

another in a global forum. Trade complaints are heard by small panels of experts. A member country found guilty breaking WTO trade rules is required to correct the violation with due speed or face retaliatory tariffs or other penalties. From 1995 to 2012 a total of 452 trade disputes were brought before the WTO, the great majority of which were settled through discussion and consultation rather than through formal panel proceedings.[6]

  • [1] WTO, “The GATT Years: From Havana to Marrakesh,” Understanding the WTO: Basics, 2012
  • [2] Ibid.
  • [3] WTO, WTO Annual Report 2013 (Geneva: WTO, 2013), 8-9; WTO, “Who We Are,” Understanding the WTO; WTO, “The GATT Years: From Havana to Marrakesh,” Understanding the WTO: Basics, 2012
  • [4] WTO, “What We Stand For,” Understanding the WTO
  • [5] WTO, WTO Annual Report, 2013 (Geneva: WTO, 2013), 3.
  • [6] WTO, “Settling Disputes: A Unique Contribution,” Understanding the WTO; WTO, “Dispute Settlement: Current Status of Disputes,”; Yonov Frederisk Agah, “WTO Dispute Settlement Body Developments in 2010,”
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