Text II. World trade organization

The WTO has two main purposes: to make rules for world trade and to settle trade disputes between nations. In early 2000 the WTO had 135 member nations, ranging from industrial nations such as the United States, Germany, and Japan to developing nations in Africa, Asia, and Latin American. The WTO is currently considering membership applications from many other nations.

Based in Geneva, Switzerland, the WTO obtains its authority from member nations, which look to the organization as a vehicle to expand world trade. Like the United Nations (UN), the WTO is essentially a club of nations, created and empowered by its members and relying on them to comply with its rules and rulings.

The WTO’s powers are most frequently exercised when it serves as a court to resolve trade disputes among nations. These judicial powers may have dramatic consequences: WTO decisions can declare the laws and regulations of sovereign nations illegal because they violate global trade rules.

The trade rules administered by the WTO are established after lengthy and often tense negotiations involving many nations. Among the rules member nations have agreed to follow is that they will not place quotas on imported goods or give domestically produced goods preference over foreign goods. The WTO permits a handful of exceptions to these rules.

WTO regulations spell out the circumstances under which the organization can settle disputes. When one member country believes that another has violated trade rules, the two countries must first seek a settlement through formal consultations. If consultations fail, the aggrieved nation can ask the WTO to convene a judicial panel and issue a ruling. WTO dispute-resolution panels are composed of three experts, usually trade lawyers, from neutral member countries. The WTO also has appellate panels that rule on final appeals. Under WTO rules, a final judgment in a trade dispute must be issued within 16 months.

A nation found to have violated trade rules has several choices. It can change the regulation or practice that the panel found improper, or it can pay compensation to the country that field the complaint. The offending nation can also refuse to accept either or these choices, but then the aggrieved country has the right to impose punitive tariffs (taxes) on goods imported from that nation.

The most prominent trade dispute handled by the WTO during the first five years of its existence involved a complaint brought by the United States against the European Union (EU), made up of 15 countries. The United States accused the EU of violating international trade rules by prohibiting the importation of beef treated with hormones. A WTO trade panel ruled in 1997 that the EU had run afoul of world trade rules because the EU could not prove its claim that hormone – treated beef was unsafe for human consumption.

The WTO requires nations to show that important restriction aimed at protecting human health or the environment are based on science. This rule is designed to prevent countries from arbitrarily discriminating against goods from other countries. Despite the WTO ruling, the Europeans refused to lift the ban on hormone-treated beef or to pay compensation. As a result, the WTO allowed the United States to levy penalty tariffs totaling $116.8 million annually on Dijon mustard, Roquefort cheese, truffles, and other imported European goods. The amount of the tariffs was based on the estimated cost of lost U.S. beef export.