Law International Trade Law

The World Trade Organization: 1

Module 4: WTO I Introduction to the Marrakesh Agreement establishing the WTO

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DESCRIPTION OF MODULE

Items Description of Module Subject Name Law Paper Name International Trade Law Module Name/Title The World Trade Organization-I Module Id 4 Pre-requisites Introduction to the Marrakech Agreement

establishing the WTO The organizational structure of the WTO, the key

decision making bodies The aims and objectives of the WTO as reflected in

its Preamble and the Marrakech Agreement

Objectives To understand the following:

Organizational structure of the WTO; Key decision making forums in the WTO; Objects and purposes of the WTO as set out in the

Marrakesh Agreement;

Role Name Affiliation Principal Investigator Dr. Ranbir Singh Vice Chancellor, National

Law University, Delhi Co-P.I Prof. Dr. G.S. Bajpai Registrar, NLU, Delhi

Paper Coordinator Dr. Saloni Khanderia-Yadav

National Law University, Delhi

Content Writer/Author Deepak Raju Associate, Sidley Austin LLP (all views are strictly personal, and do not represent the views of the firm or of any of the firm’s clients)

Content Reviewer Prof. A. Jayagovind National Law University, Delhi

Language Editor Dr. Saloni Khanderia-Yadav

National Law University, Delhi

How the WTO agreements give effect to these objects and purposes.

Keywords Organizational structure; objects and purposes; Ministerial Conference; General Council; Dispute Settlement Body; Trade Policy Review Body; Council for trade in Goods; Council for trade in Services; TRIPS Council.

E-TEXT

Introduction and learning objectives The organisational structure of the WTO, the key decision making bodies.

o WTO Ministerial Conference

o The General Council

o General Council Meeting as Dispute Settlement Body

o General Council meeting as Trade Policy Review Body

o The Council for trade in Goods (Goods Council)

o Council for Trade-Related Aspects of Intellectual Property Rights ( TRIPS

Council)

o Council for Trade in Services

The aims and objectives of the WTO as reflected in its Preamble and the

Marrakesh Agreement.

o Creation of a common institutional framework for the conduct of trade

relations

o Provide forum for negotiations

o Developmental goals

o Optimal use of the world’s resources

o Sustainable development and preservation of environment

Further Readings

Introduction and learning objectives

International law, at its inception, was often referred to as the ‘law of nations’, reflecting an

understanding that the legal system concerned solely the conduct of ‘nations’ or ‘States’.1 In

other words, historically States were considered to be the only ‘subjects’ of international law.2 It

was solely the actions of States that created the norms of international law; and it was solely the

actions of States that were governed by international law. However, in the recent times, this

understanding has evolved, and it is now widely accepted that a wide range of entities apart

from States can be ‘subjects’ of international law.3 The first among these new categories of

actors to be recognized as ‘subjects of international law’ was International Organizations.4

In 1949, the International Court of Justice was called upon to render an advisory opinion as to

whether the United Nations had a legal personality of its own, independent of the legal

personalities of its member States.5 The Court undertook an examination of the United Nations

Charter, and the powers and functions vested in the organization under the Charter. The Court

concluded that the Members had vested on the United Nations, powers and functions that could

be performed effectively only if the organization had its own legal personality.6

While studying any international organization, the constituent instrument, usually an

international treaty that establishes the organization is often the best starting point. The same is

true of the World Trade Organization. The efforts at establishing a multilateral normative

1 James Crawford (ed.), Subjects of International Law, in BROWNLIE’S PRINCIPLES OF INTERNATIONAL

LAW (8th

edn., 2013 OUP).

2 Ibid.

3 Ibid.

4 Ibid.

5. Reparation for Injuries Suffered in the Service of the United Nations, 1949 ICJ Rep. 174.

6 Reparation for Injuries Suffered in the Service of the United Nations, 1949 ICJ Rep. 174.

framework for international trade predates the Marrakesh Agreement by nearly half a century.7

The failed attempt at the Bretton Woods conference to establish an International Trade

Organization, and the decades of provisional application of the General Agreement on Tariffs

and Trade are certainly important areas for exploration for any student of the multilateral trade

system. Yet, the Marrakesh Agreement forms a watershed moment in the history of the

multilateral trade framework. For one, the Marrakesh Agreement, contained in its annexes

several substantive agreements, either elaborating the GATT discipline, or imposing additional

commitments on the Members.

However, more importantly for the purposes of this chapter, it was through the Marrakesh

Agreement that the multilateral trade framework attained the form of an international

organization. In addition to establishing the Organization, the Agreement lays down several

detailed rules for the functioning of the Organization, including the decision making processes

within the Organization. The Organization, as well as all the bodies and functionaries of the

Organization derive their powers and functions from this Agreement. Also, the Preamble to the

Marrakesh Agreement elaborates the key objectives of the WTO as an organization, which is a

valuable tool in interpreting and understanding the substantive provisions of both the

Marrakesh Agreement, as well as the other multilateral trade agreements in the WTO

framework.

This chapter seeks to introduce the reader to the organizational structure of the WTO, the key

decision making bodies, as well as the decision making process in the WTO, as established by

the Marrakesh Agreement. Additionally, the readers will be introduced to the aims and

objectives of the WTO as expressed in the Preamble to the Marrakesh Agreement and the

substantive provisions in various substantive agreements that seek to give effect to these aims

and objectives.

The organisational structure of the WTO, the key decision making bodies.

The Marrakesh Agreement establishes several bodies within the WTO institutional framework.

All of them act as important forums for decision making on matters covered by the Organization.

7 John H. Jackson, The International Institutions of Trade: The WTO and the GATT, in World Trading

System: Law and Policy of International Economic Relations (1997 MIT); Peter Van den Bossche,

The World Trade Organization, in The Law and Policy of the World Trade Organization (2005 CUP).

Below is an organizational chart available on the WTO website. As can be seen, the institutional

framework is complex, and includes several committees, working parties, etc. In line with the

introductory nature of this chapter, detailed discussion shall be limited to some key decision

making bodies, namely the Ministerial Conference, the General Council, The Dispute Settlement

Body and the Trade Policy Review Body.

WTO Ministerial Conference:

WTO Ministerial conference, set up under Article IV (1) of the Marrakesh Agreement

establishing the WTO is the highest decision making body of the WTO. It is comprised of all the

member countries and custom unions of the WTO. The ministerial conference meets at least

once in every two years. The ambit of decision making power of the ministerial conference is

wide enough to include matters under any multilateral trade agreement on the request of a

member. There has been nine ministerial conferences till date. Ministerial conference is also

assigned the function of establishing the mandatory committees which are Committee on Trade

and Development, a Committee on Balance-of-Payments Restrictions and a Committee on

Budget, Finance and Administration and such other committees as it may deem fit. The

ministerial conference appoints the Director General of the WTO Secretariat and adopts

regulation laying down the powers, functions, terms of service etc of the Director general. The

decisions at the ministerial conference are made according to the majority of the vote cast with

each member having one vote unless an exception has been provided for in the Marrakesh

agreement or the relevant Multilateral Trade Agreement. The ministerial conference along with

the General Council holds the exclusive authority to adopt the interpretations of the Marrakesh

Agreement as well as other Multilateral Trade Agreements by a three fourth majority of the

members’ votes. It also has the power to waive an obligation imposed on a member state by a

multi lateral treaty under exceptional circumstances and to review such waiver annually until it

is terminated. It also has powers with respect to amendment of the Marrakesh agreement,

Accession to the agreement etc.

The eighth WTO ministerial Conference at Geneva approved the accessions of Russia, Samoa

and Montenegro. It also adopted a waiver to enable developing and developed-country

Members to provide preferential treatment to services and service suppliers of least-developed

country (LDC) Members. The ninth ministerial conference at Bali saw the adoption of the trade

facilitation agreement which is aimed at significant reduction in transaction costs in

international transactions.

The General Council:

The General Council, established under Article IV (2) of the Marrakesh agreement is the

decision making authority of the WTO that meets regularly to carry out the functions of the

ministerial conference that meets only once in two years. The members of the General Council

are the representatives of the member states of the WTO. It approves the rules and procedure

governing the functioning of the various committees established by the ministerial conference.

It facilitates cooperation between the WTO and other intergovernmental and non-

governmental organizations that perform functions that linked to that of the WTO. It approves

the annual budget of the WTO. The decision making process is similar to that at the ministerial

conference and is made according to the majority of the vote cast with each member having one

vote unless an exception has been provided for in the Marrakesh agreement or the relevant

Multilateral Trade Agreement. As mentioned under the heading on ministerial conference, the

General council along with ministerial conference adopts the interpretation of the Marrakesh

Agreement and the Multilateral Trade Agreements on a three fourth majority vote.

The general council also convenes as Dispute Settlement Body and Trade Policy Review Body.

General Council Meeting as Dispute Settlement Body:

The general council meets as the Dispute Settlement Body (DSB) in order to perform the

functions under the WTO Dispute Settlement Undertaking adopted at the Uruguay Rounds of

Negotiations. It consists of representatives of all member countries. The DSB has its own

chairman and lays down its own procedures for the conduct of its business. The DSB has the

authority to ‘establish panels, adopt panel and Appellate Body reports, maintain surveillance of

implementation of rulings and recommendations, and authorize suspension of concessions and

other obligations under the covered agreements’8. When DSB considers a dispute only such

members who are party to the plurilateral agreement under which the dispute has arisen can

vote on the matter. The DSB informs the councils and committees of the WTO regarding

developments with respect to any dispute. The decisions at the DSB are taken by consensus.

The panels constituted under the DSB in each case assist the DSB in decision making through its

appreciation of facts and law after consultations with the parties to the dispute. Once the panel

has made its report, the report is circulated among the members. The members have 20 days to

consider the report. The parties who object the panel report can raise the same upto 10 days

before the DSB meeting. The report is adopted within 60 days of circulation to the members

unless one of the parties to the dispute informs DSB of its decision to appeal, in which case the

adoption is kept on hold till the decision in the decision on the appeal is made or the report is

unanimously rejected by the DSB.

The DSB also constitutes the appellate body consisting of 7 members, who are individuals with

recognized standing in law and international trade and not affiliated to any government and

three of whom shall serve on each case. Each member has a term of four years. It hears appeals

from panel cases. The appeals are to be decided within 60 days from the date on which a party

signifies his decision to appeal. When the appellate body is unable to deliver its decision within

60 days it has to inform the DSB with the reasons for the same in writing. In any case the

maximum time frame for deciding an appeal cannot exceed 90 days. Appeals can only be from

questions of law in the panel report. The outcome of an appeal may be the appellate body

upholding, modifying or reversing the conclusions of the panel. This report shall be wholly and

8 Article 2(1) WTO Dispute Settlement Undertaking

unconditionally adopted by the DSB and will be binding on parties unless there is a unanimous

decision of the DSB to reject the same.

Generally, the maximum time between DSB constituting the panel and considering the panel

report/ appellate report as the case may be cannot exceed 9 months where the panel report is

not appealed and 12 months where the panel report is appealed.

General Council meeting as Trade Policy Review Body:

As provided under Article IV (4) of the Marrakesh Agreement, the General Council meets as

Trade Policy Review Body(TPRB) to perform its under the Trade Policy Review Mechanism

(TPRM). The body has its own chairman and lays down its own procedure. The body reviews

the trade policy of each member country and the impact of such policy on the multi lateral

trading system on a periodical basis. The frequency of the review on each member depends on

the share of such member in world trade. The review is conducted on the basis of a report

provided by the member who is subjected to review, another report that is prepared by the

WTO secretariat on the basis of the report furnished by the member country after taking

clarifications from that country. Once the review is complete the TPRB publishes the report

furnished by the member country, the report by the WTO Secretariat, and the minutes of the

review meeting of the TPRB and the same is also forwarded to the ministerial conference. The

TPRB is also responsible for the preparation of an annual overview of the developments in the

international trading environment.

The Council for trade in Goods (Goods Council)

The Council for trade in Goods (Goods council), established under IV (5) of the Marrakesh

Agreement looks into the implementation of General Agreement on Trade and Tariff (GATT),

which is the law on international trade in goods. It functions under the guidance of the general

council. The members of the goods council are representatives of the member states. The goods

council is comprised of ten committees, each dealing with a specific subject. These committees

are the committees on agriculture, Anti Dumping, Market Access, Sanitary and Phytosanitary

measures, Technical Barriers to Trade, Subsidies and Countervailing measures, Customs

valuation, Rules of origin, import licensing, Trade related investment methods and Safeguards .

The committees shall establish their respective rules of procedure subject to the approval of the

goods council.

Council for Trade-Related Aspects of Intellectual Property Rights ( TRIPS Council)

Council for Trade-Related Aspects of Intellectual Property Rights ( TRIPS Council), established

under Article IV (5) of the Marrakesh Agreement oversees the implementation of the TRIPS

agreement. The council is under the general guidance of the general council. It has established

subsidiary bodies for the performance of its functions. It’s members are the member States of

WTO. Article 68 of the TRIPS lays down the functions of the TRIPS council to include monitoring

the member countries’ compliance with trips and providing consultations to members on

matters related to TRIPS.

Council for Trade in Services:

Council for trade in services is provided for in Article IV(5) of the Marrakesh Agreement along

with the goods council and TRIPS Council. It functions under the guidance of the general council.

The members include representatives of all member states. Article 24 of the GATS provides the

functions of the council. The council provides consultations to the members with respect to

unresolved issues related to trade in services. The members of the council consist of the

members of the WTO.

The aims and objectives of the WTO as reflected in its Preamble and the Marrakesh

Agreement.

“A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given

to the terms of the treaty in their context and in the light of its object and purpose.”9 Given this

cardinal norm of treaty interpretation, it is important to understand the objects and purposes

that treaty parties sought to attain through the treaty. Often, the provisions of the treaty

9 Article 31(1), Vienna Convention on the Law of Treaties, 1969.

themselves, as well as the Preamble of the treaty, provide useful indications of these objects and

purposes.

In case of the Marrakesh Agreement, the Preamble as well as Articles II and III, spell out these

objects and purposes. Some of the key objects and purposes emerging from these provisions

and the Preamble, as how these objectives are sought to be attained through various

substantive WTO agreements is discussed below.

1. Creation of a common institutional framework for the conduct of trade relations

Article II:1 of the Marrakesh Agreement, while listing the functions of the WTO states: “The

WTO shall provide the common institutional framework for the conduct of trade relations

among its Members in matters related to the agreements and associated legal instruments

included in the Annexes to this Agreement.”

Countries have engaged in negotiations with each other over matters of international commerce

for millennia. Yet, these negotiations were often bilateral or involved a limited number of States.

Moreover, these agreements seldom created institutional frameworks to ensure their smooth

implementation, particularly at times when political relationships between the parties to the

agreements went through rough patches.

GATT 1947 certainly provided an improvement over this status quo of its time. GATT, as an

international treaty, imposed binding legal obligations upon the Contracting Parties, which they

were expected to honor independent of political circumstances. Moreover, the Contracting

Parties acting collectively could take important decisions regarding the functioning of the

organization and could exercise a limited supervisory role to monitor the implementation of

GATT commitments. Yet, the lack of a real organization with a well adapted institutional

framework meant that the same rudimentary institutional structure would have to deal with all

diverse aspects of international trade. Also, this meant that much of the decision making, as well

as the efficacy of the supervisory functions was dependent on political consensus rather than

legal norms.

It is against this background that Article II:1 of the Marrakesh Agreement envisions WTO as a

common institutional framework. As a first step towards meeting this end, Article I establishes

the World Trade Organization and Article VIII:1 clarifies that it has independent legal

personality, implying that the WTO is capable of holding rights and obligations, independent of

those of its Members. Further, as discussed above, the Marrakesh Agreement and other

multilateral trade agreements establish several specialized bodies for decision making and

monitoring of implementation of commitments in various aspects of international trade.

2. Provide forum for negotiations

Article II:2 of the Marrakesh Agreement states “he WTO shall provide the forum for negotiations

among its Members concerning their multilateral trade relations in matters dealt with under the

agreements in the Annexes to this Agreement. The WTO may also provide a forum for further

negotiations among its Members concerning their multilateral trade relations, and a framework

for the implementation of the results of such negotiations, as may be decided by the Ministerial

Conference.”

The Marrakesh Agreement and the WTO themselves are results of prolonged negotiations

among a large number of participants. Countries with diverse trade related interests negotiated

on several aspects before the draft of the Marrakesh Agreement and the other multilateral trade

agreements could be finalized. Subsequently, the WTO Membership has engaged in negotiations

on a large number of topics. While a part of these negotiations concern implementation of

existing commitments other negotiations have sought the adoption of additional commitments.

Another important function of negotiations in WTO is clarification or elaboration of existing

rules. An example of negotiations concerning implementation of existing commitments is in the

area of elimination of agricultural subsidies, an issue that developing countries have repeatedly

raised during trade negotiations. The recent efforts at negotiating a Trade Facilitation

Agreement is an example of negotiations intended at adoption of additional commitments. The

Doha Declaration on TRIPS and Public Health was the negotiated outcome, which was largely in

nature of clarifying, qualifying and elaborating existing commitments under the WTO

commitments on intellectual property.

The WTO, as an organization, and its Members, also engage in prolonged negotiations with non-

Members on conditions for their accession to the Organization. These negotiations decide the

extent of tariff bindings, service schedules and other commitments that the new entrant

undertakes as a part of its WTO commitments. Also, these negotiations often focus on reforming

certain laws and institutional structures within the potential Member that the existing

membership views to be inconsistent with WTO commitments. It is also open to the existing

membership to modify certain obligations, particularly implementation timelines, for the

potential Member through clauses in the accession protocol. For instance, Article 28 of the

Agreement on Subsidies and Countervailing Measures allows WTO members a three year time

period to eliminate certain existing subsidies which are inconsistent with the WTO subsidies

discipline. Yet, the accession protocols of Russia and China effectively deny those new entrants

the benefit of the said grace period.

Trade negotiations have always been, and still remain, a political process. The establishment of

the WTO as a forum for negotiations does not change that or eliminate all the difficulties

associated with a political process of negotiation. Yet, in providing a forum where the views of

all members can be expressed, and by providing a common language for negotiations, WTO

does take the process a step further.

3. Developmental goals

Smith and Ricardo provided economic evidence to suggest that trade benefits both parties to it.

In simple terms, Smith and Ricardo suggest that countries would benefit if they produced what

they could produce at lower cost than other countries, exported these goods to other countries,

and imported those goods that other countries could produce at a lower cost. While economic

literature, both in support of trade and against it, has moved to higher levels of complexity on

this point, WTO is founded on the assumption that trade benefits all trading partners. Yet, it was

recognized that special emphasis should be given to the developmental needs of least developed

countries and other developing countries, and special efforts should be made to meet these

needs.

In recognition of this, the Preamble of the Marrakesh Agreement makes the following

statements in expression of the developmental goals of the organization:

“Recognizing that their relations in the field of trade and economic endeavor should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development,

Recognizing further that there is need for positive efforts designed to ensure that developing countries, and especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development,”

The multilateral trade agreements sought to give effect to these goals through several

provisions directed at ensuring the Special and Differential Treatment of developing countries.

Part V of the GATT contained several provisions seeking to address the special needs of

developing countries by calling upon developed countries to enhance the market access for

developing country products, without expectation of reciprocity. Additionally, in 1979, the

GATT Contracting Parties adopted the Enabling Clause, which clarified that the Most Favored

Nation principle under Article I of the GATT did not prevent developed countries from

extending additional benefits to developing countries through a ‘Generalized System of

Preferences’. Also, several substantive agreements allowed developing countries additional

time to implement their commitments. Despite these, several scholars argue that the WTO’s

outlawing of protectionist tactics like quantitative restrictions, voluntary export restrictions,

export subsidies and domestic content subsidies, stringent intellectual property norms, etc. will

deprive the developing countries from availing of the same path that several developed

countries adopted in their journey towards the present stage of their development, ‘kicking

away the ladder’.

4. Optimal use of the world’s resources

As evident from the portion of the Preamble to the Marrakesh Agreement quoted above, optimal

use of the world’s resources is among the proposed objectives of the WTO. There exist concerns

that the lure of additional revenues from trade will result in over-exploitation of certain

exhaustible resources. As a partial solution, Article XX(g) of the GATT allows measures “relating

to the conservation of exhaustible natural resources” as an exception to GATT commitments.

The Appellate Body has clarified that the expression “exhaustible natural resources” must be

given a broad interpretation in line with the objective of sustainable development. Accordingly,

even measures taken to protect living creatures have been held to fall under the ambit of this

provision.

However, Article XX(g) is available as an exception only “if such measures are made effective in

conjunction with restrictions on domestic production or consumption”. Therefore, it may not be

available as a justification where a country chooses to allot a particular commodity solely for

domestic purposes even if that country determines for itself that the said measure is the most

‘optimum’ use of the said resource. In China – Raw Materials,10 China argued that its ban on

10

China — Measures Related to the Exportation of Various Raw Materials, WT/DS 394, Panel Report

certain raw materials was justified since China deemed this to be an optimal use of the resource.

However, the same was rejected by the Panel. Here, there seems to be a divergence between the

multilateral trade frameworks on the one hand, and customary international law which

recognizes the permanent sovereignty of States over their natural resources,11 and by

implication their right to determine what uses of natural resources are ‘optimal’.

5. Sustainable development and preservation of environment

The Preamble of the Marrakesh Agreement also highlights environmental goals and sustainable

development among the objects and purposes of the Organization. However, the substantive

provisions of the multilateral agreements do not create any environmental obligations for the

parties. Rather, they often provide exceptions to ensure that trade commitments do not come in

the way of environmental goals of the members.

For instance, Article XX of GATT contains the following exceptions – “(a) necessary to protect

public morals; (b) necessary to protect human, animal or plant life or health; […] (g) relating

to the conservation of exhaustible natural resources”.

These exceptions have been used to justify measures taken to inter alia, protect clean air,12

conserve marine mammals,13 and prevent accumulation of waste tyres.14 Recently, the Appellate

Body has also held that prevention of animal cruelty can fall within ‘public morals’ under Article

XX(a), when deciding a dispute relating to trade in seal products.15 India recently banned the

import of foie gras based on cruelty to geese.

11

Permanent Sovereignty over Natural Resources, G.A. res. 1803 (XVII), 17 U.N. GAOR Supp.

(No.17) at 15, U.N. Doc. A/5217 (1962).

12 United States — Standards for Reformulated and Conventional Gasoline, WT/DS2

13 United States — Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS 58; United

States — Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products,

WT/DS 381.

14 Brazil — Measures Affecting Imports of Retreaded Tyres, WT/Ds 332..

15 European Communities — Measures Prohibiting the Importation and Marketing of Seal Products,

DS 401