The World Trade Organization (WTO) and the World Customs Organization (WCO) are significant players in international trade matters. However, their roles are sometimes confused and misunderstood. One difference between the two is their membership, comprising of government representatives of the world’s nations. The WTO is located in Geneva, Switzerland and has 161 member countries while the WCO is located in Brussels, Belgium and has 180 member countries.
The WTO was established in 1995. It was preceded by the General Agreement on Tariffs and Trade (GATT) which began with 23 countries in 1948. The WTO’S primary function is that of a negotiator. The organization focuses on the removal of barriers to international commerce through multi-lateral trade agreements. These agreements, negotiated among its membership, govern a wide range of trade matters that keep countries’ trade policies within agreed limits. Its members, representing the leadership of each country, agree to abide by the negotiated rules and the WTO provides a dispute settlement process if they cannot agree.
The WTO’s negotiated trade rules involve goods – General Agreement on Tariffs and Trade (GATT); services – General Agreement on Trade in Services, (GATS); and intellectual property – Trade-Related Aspects of International Property Rights (TRIPS). These three agreements provide the underlying principles for additional agreements.
WTO agreements have been accomplished over the years in succeeding rounds of negotiations named after the place where those negotiations began or a prominent individual on the world trade scene. They can last anywhere from a few months to several years.
The Uruguay Round began in 1986 and lasted over seven years. It was successful in reducing tariffs among the parties by 40%, reducing agriculture subsidies, gaining full access for textiles from developing countries, and extending intellectual property rights. It includes about 60 agreements, including the successfully negotiated Information Technology Agreement (ITA).
The current Doha Development Round, in progress for nearly fourteen years, has the objective to lower tariff barriers. It has been disappointing and nearly unraveled several times due to issues such as agriculture subsidies. Also, attempts to update the ITA, a success of the Uruguay Round, have been a source of frustration in the Doha Round.
A limited success within the Doha Round was achieved in December 2013. The Trade Facilitation Agreement (TFA) or so-called “Bali Package” was agreed to and is currently in the process of member ratification. If two-thirds of the members ratify it, it will come into force. TFA is an agreement to modernize customs activities by using e-commerce solutions and reduce bureaucracy. It includes the implementation of the “single-window” concept that simplifies the collection of customs and regulatory information for multiple government agency purposes using a standard data set through a single delivery point.
The WCO evolved from a Study Group formed to examine customs issues identified by the GATT. In 1953, the Study Group established a committee made up of 17 members, which was named the Customs Cooperation Council (CCC). In 1994, to recognize its worldwide growth, it adoped the name World Customs Organization (WCO). The WCO’s role is to govern various frameworks and conventions that facilitate secure and free flowing international trade. The WCO is made up of representatives of the customs administrations of member countries.
The WCO has a number of working standards that provide a significant framework for the operation of Customs in its member countries. These standards include the Harmonized Commodity Description and Coding System (also known as Harmonized System or HS) providing the basis for classifying goods for duty, admissibility, and statistic purposes; the Customs Valuation Code that outlines methods of assigning values for duty calculation purposes; and the Safe Framework of Standards to Secure and Facilitate Global Trade that lays out guidelines to ensure the security of the supply chain through the participation of “authorized economic operators” (volunteer participants such as importers, exporters, brokers, freight forwarders, carriers, etc.).
Meanwhile, WCO has failed to adopt harmonized rules for non-preferential, country of origin determination. The attempts to gain support for adopting the rules among the members has failed.
Going forward, the WCO has begun the Mercator Program, to start where the WTO left off with the TFA. It will provide assistance and coordinate trade facilitation measures to those countries preparing to implement the TFA.
As international trade continues to progress, look for the WTO and WCO to continue to play their respective roles. The WTO will negotiate multi-lateral trade agreements, the WCO will administrate global customs standards. Together, their complementary roles facilitate the global supply chain.