World Trade Organization (WTO)

The World Trade Organization (WTO) is an international specialized agency established to regulate trade between different countries. It is the modern form of the General Agreement on Tariffs and Trade (GATT), which was established in 1947. 

The WTO was established on January 1, 1995, with the signatures of 125 member countries of GATT. This was due to certain shortcomings in the GATT agreement, its inability to cover all areas of international trade, and its failure to address the wave of economic liberalization that spread worldwide after the 1980s. 

The central office of the WTO is located in Geneva, Switzerland. As of July 29, 2016, the number of member states of the WTO had reached 164. Nepal became the 147th member of the WTO on April 23, 2004.

To ensure the continuous flow of trade among member nations, the WTO has adopted principles such as non-discriminatory trade, free trade, development of competition, promotion of development and economic reform, and guarantee of security.

Objectives of the World Trade Organization (WTO)

The WTO has set several strategic objectives to guide trade in the right direction. Some of the main objectives are as follows:

1. To resolve trade-related disputes between member nations based on mutual benefit.
2. To simplify and reduce customs duties and other taxes among member nations.
3. To achieve sustainable development in member nations through trade diversification.
4. To conserve and promote environmental resources in a scientific manner.
5. To mobilize resources to increase employment, effective demand, and real income in member nations.

Importance of the World Trade Organization (WTO)

1. The WTO provides technical and financial assistance to weak member nations to enhance their competitive capacity, which is not available to other countries.
2. Free trade of goods and services occurs among member nations based on comparative cost advantages.
3. The WTO addresses the trade transit problems faced by landlocked countries like Nepal.
4. The WTO helps stabilize the exchange rate of domestic currency in internal and external trade.
5. There is a possibility of capital investment flow from multinational companies to developing nations, which creates high levels of employment in poor nations.
6. It creates high opportunities for factors of production with high productivity and efficiency among member nations.
7. Technology transfer occurs from developed nations to developing nations.

Challenges of the World Trade Organization (WTO)

Along with significant benefits, the WTO also faces some challenges, which are discussed as follows:

1. Developed and powerful member nations of the WTO purchase natural resources, raw materials, and labor from developing and weak member nations at low prices to produce goods and then sell them back to the same developing and weak member nations at high prices. This poses a challenge for developing and weak member nations to enhance their capacity and demonstrate their competitive presence in the global market.
2. As the WTO ensures global trade only for goods with high comparative advantages in terms of price, quality, and quantity, not all producers may get opportunities.
3. There is a fear that capital investment by multinational and multilateral companies will lead to the colonization of poor and developing nations.
4. Due to the conditions of the WTO, traditional and infant industries that cannot compete face the risk of losing their domestic markets as well.
5. The need to maintain open markets and low tariff rates can lead to a flood of foreign goods. This can cause domestic production to lose market share on one hand, and lead to an unfavorable balance of payments for the country on the other.