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WORLD TRADE ORGANIZATION

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Learning Objectives

To elucidate the significance of WTO and its genesis To briefly explain the functions and structure of WTO To describe the principles of multilateral trading system under WTO

To provide an overview of WTO agreements

To explicate the dispute settlement system under WTO To discuss the ministerial conferences and emerging issues To evaluate the WTO system in context of developing countries
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Significance of WTO
The World Trade Organization (WTO) is the only international organization that deals with global rules of trade between nations. It provides a framework for conduct of international trade in goods and services. It lays down the rights and obligations of governments in the set of multilateral agreements.
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WTO vs. GATT

GATT remained a

provisional agreement and organization

whereas WTO commitments are permanent.

GATT rules mainly applied to trade in goods whereas the WTO covers other areas, such as services, intellectual property, etc.

GATT had contracting parties whereas the WTO has members.

GATT was essentially a set of rules of the multilateral treaty with no institutional foundation whereas the WTO is a permanent

institution with its own Secretariat.

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A country could essentially follow domestic legislation even if it violated a provision of the GATT agreement which is not allowed by the WTO. In WTO, almost all the agreements are multilateral in nature involving commitment of the entire membership whereas a number of GATT provisions were plurilateral and therefore selective. The WTO also covers certain grey areas, such as agriculture, textiles and clothing, not covered under the GATT. The dispute settlement system under the WTO is much more efficient, speedy, and transparent unlike the GATT system which was highly susceptible to blockages.
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Functions of WTO

To facilitate the implementation, administration, and operation of trade agreements To provide a forum for further negotiations among member countries Settlement of differences and disputes among its member countries To carry out periodic reviews of the trade policies of its member countries To assist developing countries in trade policy issues, through technical assistance and training programs To cooperate with other international organizations
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Decision-making
WTO is a member-driven consensus-based organization where all major decisions are made by its members as a whole. The WTOs agreements have been ratified in all members parliaments. Unlike other international organizations, such as the World Bank and the IMF, in WTO the power is not delegated to the board of directors or the organizations head.
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Organizational Structure of the WTO

Highest authority Second level Third level

: The Ministerial Conference : General Council : Councils for each broad area of trade

Fourth level

: Subsidiary bodies

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Principles of the Multilateral Trading System under the WTO

Trade without discrimination Gradual move towards freer markets through negotiations Increased predictability of international business environment

Promoting fair competition

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WTO AGREEMENTS: AN OVERVIEW

An umbrella agreement establishing WTO

Agreements for each of the three broad areas of trade covered by WTO
Goods Services Intellectual Property

Dispute settlement
Reviews of governments trade policies
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General Agreement on Tariffs and Trade (GATT)

Opening up of the industrial sector

Reduction in tariffs

Tariff bindings

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Creating Fairer Markets in Agriculture Sector

Although earlier rules of GATT did apply to agriculture trade they contained loopholes. As a result, international trade in agriculture became highly distorted, especially with the use of export subsidies which would not normally have been allowed for industrial products. The Uruguay Round produced the first multilateral agreement dedicated to the agriculture sector. The objective of the agreement on agriculture was to reform trade in agriculture and to make policies more market oriented.
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Elimination of Non-tariff Measures through the Tariffication Process

Subsequent to the Uruguay Round, quotas and other types of trade restrictive measures were to be replaced by tariffs that provide more or less equivalent levels of protection. This process of converting quotas and other types of non-tariff measures to tariffs that represent about the same level of protection, is termed tariffication.
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Binding Against Further Increase of Tariffs

In addition to elimination of all non-tariff measures by tariffication, all countries have bound all tariffs applicable to agricultural products. In most cases, developing countries have given binding at rates that are higher than their current applied or reduced rates.

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Domestic Support
Under the Agreement on Agriculture, domestic policies

that have a direct effect on production and trade have to

be cut back. The domestic support in the agriculture sector is categorized under Green, Amber, and Blue boxes.

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Green Box: All subsidies that have little or all most minimal
trade distorting effects are exempted from commitments towards reduction.

Amber Box: It is a ceiling on the total domestic support that a government may provide to domestic producers.

Blue Box: Certain categories of direct payment to farmers are

also permitted where farmers are required to limit production. This also includes government assistance programmes to encourage agricultural and rural development in developing countries
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Export Subsidies

The agreement on agriculture prohibits export subsidies on agricultural products unless the subsidies are specified in a members lists of commitments. Where

they are listed, the agreement requires WTO members

to cut both the amount of money they spend on export subsidies and the quantities of exports that receive subsidies.
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Standards and Safety Measures

Article 20 of the GATT allows governments to act on trade in order to protect human, animal, or plant life or

health, provided no discrimination is made and this is

not used as disguised protectionism.

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Agreement on Sanitary and Phytosanitary (SPS) Measures

The SPS measures sets out the basic rules on food safety and plant health standards. This allows countries to set their own standards which have to be based on science and should not arbitrarily or unjustifiably discriminate between countries where identical or similar conditions prevail.
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Agreement on Technical Barriers to Trade (TBT)

This agreement complements with SPS measures and attempts to ensure that regulations, standards, testing, and certification procedures do no create unnecessary obstacles to trade.

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Opening Up International Business Opportunities in Textiles

From 1974, until the end of the Uruguay Round, the international trade in textiles was governed by the Multi-fibre Arrangement (MFA). This was a

framework for bilateral agreements or unilateral actions

that established quotas limiting imports into countries whose domestic industries were facing serious damage from rapidly increasing imports.
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Post-MFN Textile and Clothing Scenario

On full integration into GATT and final elimination of quotas, the Agreement on Textiles and Clothing ceased to exist on 1 January, 2005. This has opened immense opportunities and challenges for the developing countries.

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General Agreement on Trade in Services (GATS)

GATS is the first and the only set of multilateral rules governing international trade in services. Negotiated in the Uruguay Round, it was developed

in response to the strong growth of the services

economy and the greater potential for marketing

services internationally.
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General Obligations and Disciplines

Mode 1: Services supplied from one country to another. Consumers or firms making use of a service in another country A foreign company setting up subsidiaries or branches to provide services in another country, i.e. commercial presence Individuals travelling from their own country to supply services in another, i.e. presence of natural persons

Mode 2:
Mode 3:

Mode 4:

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Salient Features of GATS

Most-favoured-nation (MFN) treatment Commitments treatment Transparency on market access and national

Objectivity and reasonability of regulations

Recognition International payments and transfers Progressive liberalization
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Protection and Enforcement of IPRs

The WTOs agreement on Trade-Related Aspects of Intellectual

Property Rights (TRIPS), introduced intellectual property rules in

the multilateral trading system for the first time. TRIPS lays down minimum standards for the protection of IPRs as well as the procedures and remedies for their enforcement. It also

establishes a mechanism for consultations and surveillance at the

international level to ensure compliance with these standards by

member countries at the national level.
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Curbing Unfair Marketing Practices

International market competitions get distorted mainly by unfair trade practices, as:

If the exported goods benefit from the subsidies If exported goods are dumped in overseas markets

The agreements on Anti-Dumping Practices (ADP) and on Subsidies and Countervailing Measures (SCM) authorize importing countries to levy compensatory duties on import of products.
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Dumping
A product is considered to be dumped if

The export price is less than the price charged for the same product in the exporting country, or it is sold for less than its cost of production and

Dumping is causing injury to domestic industry in the importing country.

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Agreements on Anti-dumping Practices (ADP)

The WTO agreement on anti-dumping allows governments to act against dumping where there is genuine (material) injury to the competing domestic industry.

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The Agreement on Subsidies and Countervailing Measures (SCM)

This agreement disciplines the use of subsidies and regulates the actions countries can take to counter the effects of subsidies by other countries. It can launch its own investigations and ultimately charge extra duty (known as countervailing duty) on subsidized imports that are found to be hurting domestic producers.

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Category of Subsidies included under SCM

Prohibited Subsidies: Those subsidies that require recipients to

meet certain export targets, or to use domestic goods instead of imported goods.
Actionable Subsidies: Subsidy has an adverse effect on its

interest such as :
Hurts domestic industry of importing country Hurts rival exporters from another country when the two compete in third market Hurt exporters trying to compete in the subsidized countrys domestic market.
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Emergency Protection from Imports

A WTO member may restrict imports of a product temporarily (take safeguard actions) if its domestic

industry is seriously injured or threatened with injury

caused by a surge in imports.

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Attempting to Reduce Non-Tariff Barriers

Growing use of unconventional Non-Tariff Measures (NTMs), such as health and safety measures, technical regulations, environmental controls, customs valuation procedures, and labour laws by developed countries has become a major barrier to market access to exports from developing countries.
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Import Licensing Procedures

The agreement attempts to simplify and bring transparency to import procedures. It requires governments to publish sufficient

information for international traders to know how and

why licences are granted.

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Customs Valuation
The WTO agreement aims for a fair, uniform, and

neutral system for the valuation of goods for customs

purposesa system that conforms to commercial

realities, and which outlaws the use of arbitrary or

fictitious customs values.

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Pre-shipment Inspection
The pre-shipment inspection agreement places

obligations on governments that use pre-shipment

inspection such as non-discrimination, transparency, protection of confidential business information, avoiding unreasonable delay, use of specific guidelines for conducting price verification, and avoiding conflicts of interest by the inspection agencies.
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Rules of Origin
Rules of origin are used as the criteria to define where a product

was made. The Rules of Origin Agreement requires WTO

members to ensure that their rules of origin are transparent; that

they do not have restricting, distorting, or disruptive effects on

international trade. The Rules are administered in a consistent,

uniform, impartial, and reasonable manner.

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Agreement on Trade Related Investment Measures (TRIMs)

The TRIMs stipulates that no member shall apply any measure that discriminates against foreigners or foreign products. It also outlaws investment measures that lead to restrictions in quantities and measures requiring particular levels of local procurement (local content requirements) by an enterprise.
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Plurilaterals Agreements

Fair trade in civil aircraft

Opening up of competition in government procurement

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Ensuring Transparency in Trade Policy

WTOs Trade Policy Review Mechanism (TPRM) aims to achieve transparency in regulations in the following ways:

Governments have to inform the WTO and fellowmembers of specific measures, policies, or laws through regular notifications. The WTO conducts regular reviews of individual countries trade policies.
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Settlement of International Trade Disputes

Dispute settlement is the WTOs unique contribution which provides effectiveness to the rule based

multilateral trading system. The WTOs procedure for

settling disputes makes the trading system more secure and predictable.
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Dispute Settlement Process

Time Taken
60 days 45 days 6 months 3 weeks 60 days Total 6090 days 30 days Total

Stages
Consultations, mediation, etc. Panel set up and panellists appointed Final panel report to parties Final panel report to WTO members Dispute Settlement Body adopts report (if no appeal) One Year (without appeal) Appeal report Dispute Settlement Body adopts appeals report One year 3 months (with appeal)
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Ministerial Conferences

Singapore Ministerial Conference (913 December, 1996)

Geneva Ministerial Conference (1820 May, 1998)

Seattle Ministerial Conference (30 November - 03 December, 1999 Doha Ministerial Conference ( 914 November, 2001) Cancun Ministerial Conference (1014 September 2003) The Hong Kong Ministerial Conference (1318 December, 2005)
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The Deadlock in WTO Negotiations

Doha work programme were suspended in July, 2006. mainly due to lack of consensus between developing and developed countries, and the complexity of issues involved multilateral negotiations other get stalled.

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GATT/WTO System and Developing Countries

Although developing countries form a much bigger group numerically under the WTO, decision-making is significantly influenced by the developed countries. Therefore over the years,

the divide between the developed and developing countries in the

WTO has widened, leading to deadlocks in the process of multilateral negotiations.

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