An Introduction to the WTO A What

An Introduction to the WTO

A. What is the WTO? l The World Trade Organisation (WTO) Established on 1 st January 1995 As a result of the Uruguay Round negotiations (1986 -1994) Located in Geneva, Switzerland Members: 149 countries (as of 11 Dec. 2005) l At its simplest: “A global organisation dealing with rules of trade between nations”. (source: WTO)

Evolution of the WTO Predecessor of the WTO – The GATT ‘ 47 l l l The General Agreement on Tariffs and Trade (GATT) 1947 -the first major effort to establish international rules governing trade in goods. Though initially conceived as a provisional legal instrument, it endured for almost 50 years. It functioned without a formal organisational framework to oversee its implementation as the proposed International Trade Organisation (ITO) never came into being and the ITO Charter (aka the Havana Charter) of which GATT was only to be a part, never came into effect. GATT’s primary focus was the reciprocal reduction of tariffs which later expanded to other trade related areas. In the years leading up to the Uruguay Round, GATT expanded its competence through several rounds of trade negotiations which witnessed the formulation of complex legal instruments on specific aspects of trade, particularly disciplines on the use of non tariff barriers.

The Uruguay Round (1986 -1994) l l l The results of the Uruguay Round (UR) were signed in Marrakech, Morocco on 15 April 1994. The WTO came into being on 1 January 1995 by virtue of the Agreement establishing the WTO. The scope of the multilateral trading system was broadened from trade in goods (GATT) to encompass trade in services (GATS) and trade related aspects of intellectual property rights (TRIPS). It was a rule-based global trading system complete with its own dispute resolution procedures. The “Single Undertaking” concept The multilateral trade agreements under the WTO system are treated as a single undertaking which means that every member state of the WTO is a party to every one of these agreements and must implement them accordingly.

The WTO’s functions l l l Administers the WTO Agreements and facilitates their operation and implementation Provides a forum for trade negotiations among member states on matters covered by the Agreements and for further liberalisation of trade amongst members Responsible for the settlement of differences and disputes between members Responsible for periodic reviews of the trade policies of members Also provides technical assistance and training for developing countries Cooperates with other international organisations on subjects of mutual interest

Principles of the world trading system under the WTO l l l Non discrimination- Most Favoured Nation (MFN) and National Treatment obligations Freer trade – negotiations aimed at lowering trade barriers Predictability and transparency - binding commitments, restrictions on the use of barriers to trade and transparent trade policies and regulatory frameworks (e. g. transparency obligations in the major trade agreements and the Trade Policy Review Mechanism) The promotion of fair competition- MFN, national treatment and rules against unfair trade practices (e. g. anti dumping) Encouragement of development and economic reform

Organisational structure of the WTO l l l Ministerial Conference- The apex body for decision making (meets every 2 years). Composition: -ministerial representatives. General Council- performs the functions of the Conference between meetings and has specific duties assigned to it by the WTO agreements. Composition: - governmental representatives. The General Council also meets as the Dispute Settlement Body and the Trade Policy Review Body. Councils for Trade in Goods (oversees GATT), Trade in Services (oversees GATS) and TRIPS which report to and assist the General Council. Committees on special subjects, Committees functioning under the Councils and Committees for the Plurilateral Agreements. Membership- developed, developing, least developed countries and economies in transition. Decision making is by consensus. If consensus is not possible decisions will be taken by a majority vote.

The Uruguay Round agreements l l l The Agreement establishing the WTO Its Annexes Annex 1 A - GATT 1994 , related agreements (e. g. Agreements on Agriculture, Subsidies etc. ) and texts 1 B- General Agreement on Trade in Services (GATS) and Annexes 1 C- Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) Annex 2 Understanding on the Rules and Procedures Governing the Settlement of Disputes (aka Dispute Settlement Understanding /DSU) Annex 3 Trade Policy Review Mechanism Annex 4 Plurilateral Agreements (e. g. Agreement on Trade in Civil Aircraft)

Four main principles of GATT l l Most Favoured Nation – Art. 1 of GATT embodies the MFN rule. At its simplest, it requires any favourable treatment granted to a product originating in or destined for any other country, to be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other member states. E. g. Spanish coffee case: Spain applied a higher duty on the types of coffee imported from Brazil while applying a lower duty on other coffees considered to be ‘like products’. The Panel considered this to be a breach of its GATT MFN obligation. There are permitted exceptions to the MFN rule: for e. g. free trade areas/customs unions and preferential systems. [The principle of MFN is also found in GATS(Art. 2) and TRIPS (Art. 4)]

Principles (Cont. ) l National Treatment – The national treatment rule in Art. 3 of GATT provides that internal taxes, charges, laws and regulations must not be applied so as to afford protection to domestic production. The imported product must not be subject directly or indirectly to internal taxes in excess of those applied directly or indirectly to the like domestic product. E. g. Japan- Alcoholic beverages case (1996) imported vodka (and other alcoholic beverages) vs. local shochu (a distilled white spirit) and excessive taxes on the former. [The national treatment principle is also found in GATS (Art. 17) and TRIPS (Art. 3). ]

Principles (Cont. ) l l Tarrification - Protection of the domestic industry by tariffs only. - Reinforced through rules which prohibit use of quantitative restrictions (Art 11 GATT). Limited exceptions are allowed e. g. for BOP reasons (Art 12 GATT). Tariff Concessions- negotiations shall be aimed at reducing tariffs (Preamble and Art. 28 bis GATT). Tariffs shall also be bound against further increases [Art 2. 1(b) GATT]. (Tariff concessions are recorded in schedules of concessions)

The WTO as a dispute settlement forum and a monitoring body l Settlement of disputes under the DSU 1. Consultations, good offices, conciliation and mediation 2. Panel proceedings 3. Appellate Body 4. Consideration and adoption of Panel/AB reports by the DSB If the report concludes that a measure is inconsistent with a covered agreement the Panel (/AB) must recommend that the Member concerned bring the measure into conformity with that agreement. Adoption of Panel (/AB) reports by the DSB is automatic. 5. Implementation of reports by members - Compliance - Negotiation of compensation (voluntary, mutually acceptable) - Authorisation of retaliatory action (suspension of concessions/obligations) l Trade Policy Review Mechanism- Periodic review of trade policies

Services and the WTO l l l The WTO regulates trade in services through the General Agreement on Trade in Services (GATS). The GATS is “broadly comparable” to the GATT but there are significant differences in its approach to liberalization. Services cover a wide range of activities. Under the GATS, the term “services” include any service in any sector except services supplied in the exercise of governmental authority. The GATS applies to all measures by Members affecting trade in services. Measures can be laws, regulations, procedures, decisions, administrative action etc. , of Member governments.

Cont. l Trade in services under the GATS is defined in terms of four modes of supply. They are : (1) from the territory of one Member into the territory of any other Member (aka cross border supply of services/ Mode 1) (2) in the territory of one Member to the service consumer of any other Member (aka consumption abroad/ Mode 2) (3) by a service supplier of one Member, through commercial presence in the territory of any other Member; (aka commercial presence/ Mode 3) (4) by a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member (aka presence of natural persons/ Mode 4) (Art. 1 GATS)

GATS obligations Two main categories of obligations l General obligations which apply to all service sectors of all Members. l Specific obligations which apply only to service sectors specified in the Member’s “Schedule of specific commitments”.

General Obligations MFN (Art. 2) “With respect to any measure covered by this Agreement, each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favorable than that it accords to like services and service suppliers of any other country. ” Note qualifications to the MFN rule via Art. 2 exemptions and RTAs (Art. 5) Transparency (Art. 3) Art. 3 is mainly concerned with the provision of information. The rule requires the “prompt” publication of general measures, notification of changes to/introduction of measures that affect sectors covered by specific commitments to the Services Council. Also requires the establishment of national enquiry points.

Specific obligations Market Access Art. 16 “With respect to market access through the modes of supply identified in Article 1, each Member shall accord services and service suppliers of any other Member treatment no less favorable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule. ” Art. 16 contains a prohibition of a list of measures (mostly quantitative) which Members cannot maintain unless they specify them in their Schedules as limitations on market access. These measures include: - limitations on the number of suppliers (e. g. quotas) - limitations on the quantity of service out put (e. g. limited broadcasting time foreign films) - limitations on the participation of foreign capital or restrictions on the type of legal entity (e. g. joint venture)

Cont. National Treatment Art. 17 “In the sectors inscribed in its Schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favorable than that it accords to its own like services and service suppliers. ” Example : The availability of tax incentives only to companies controlled by nationals of the country in the retail services sector. Art. 17 covers both de jure and de facto discrimination.

Cont. Domestic regulations Art. 6 Article 6 addresses domestic regulations as these may act as barriers to trade even if they are non-discriminatory. E. g. professional qualifications, licensing procedures and technical regulations. Certain Art. 6 obligations apply only to service sectors in which commitments have been undertaken. They include: obligations to ensure that general measures are administered in “a reasonable, objective and impartial manner”. obligations aimed at preventing licensing and qualification requirements and technical standards from being unnecessary barriers to trade.

WTO: Benefits for business l l l Creation of a stable, rule based, multilateral trading regime Market access translates into market opportunities The rule based system creates certain rights of access - Security of access tariff bindings and disciplines on barriers to trade whether tariff or non tariff. It also provides non discriminatory treatment of products and services. - Stability of access the application of uniform rules in key areas of the trading process e. g. customs valuation, import licenses etc. - Rights against unfair trade practices for – – – Domestic industry Export industry Import industry

Participating in the process Why is it important? l Improve market access through continuous lobbying through chambers of commerce, trade/product/service organizations. l Overcome problem areas in international trading e. g. technical standards, high tariffs on processed goods. l Expand or protect trading interests through support or opposition of new subject areas in trade negotiations. l Preserve or defend markets through their governments’ use of the dispute resolution mechanism.

Advantages and Disadvantages of WTO l The WTO is a body designed to promote free trade through organizing trade negotiations and act as an independent arbiter in settling trade disputes. To some extent the WTO has been successful in promoting greater free trade.

Advantages of WTO l Helps promote peace within nations: Peace is partly an outcome of two of the most fundamental principle of the trading system; helping trade flow smoothly and providing countries with a constructive and fair outlet for dealing with disputes over trade issues. Peace creates international confidence and cooperation that the WTO creates and reinforces.

Advantages of WTO l Disputes are handled constructively: As trade expands in volume, in the numbers of products traded and in the number of countries and company trading, there is a greater chance that disputes will arise. WTO helps resolve these disputes peacefully and constructively. If this could be left to the member states, the dispute may lead to serious conflict, but lot of trade tension is reduced by organizations such as WTO.

Advantages of WTO l Free trade cuts the cost of living: Protectionism is expensive, it raises prices, WTO lowers trade barriers through negotiation and applies the principle of nondiscrimination. The result is reduced costs of production (because imports used in production are cheaper) and reduced prices of finished goods and services, and ultimately a lower cost of living.

Advantages of WTO l l l It provides more choice of products and qualities: It gives consumer more choice and a broader range of qualities to choose from. Trade raises income: Through WTO trade barriers are lowered and this increases imports and exports thus earning the country foreign exchange thus raising the country's income. Trade stimulates economic growth: With upward trend economic growth, jobs can be created and this can be enhanced by WTO through careful policy making and powers of freer trade.

Advantages of WTO l Basic principles make life more efficient: The basic principles make the system economically more efficient and they cut costs. Many benefits of the trading system are as a result of essential principle at the heart of the WTO system and they make life simpler for the enterprises directly involved in international trade and for the producers of goods/services. Such principles include; non-discrimination, transparency, increased certainty about trading conditions etc. together they make trading simpler, cutting company costs and increasing confidence in the future and this in turn means more job opportunities and better goods and services for consumers.

Advantages of WTO l l Governments are shielded from lobbying: WTO system shields the government from narrow interest. Government is better placed to defend themselves against lobbying from narrow interest groups by focusing on trade-offs that are made in the interests of everyone in the economy. The system encourages good governance: The WTO system encourages good government. The WTO rules discourage a range of unwise policies and the commitment made to liberalize a sector of trade becomes difficult to reverse. These rules reduce opportunities for corruption.

Disadvantages of WTO l l l However, the WTO has often been criticised for ignoring the plight of the developing world. It is argued the benefits of free trade accrue mostly to the developed world. Free trade may prevent developing economies develop their infant industries. For example, if a developing economy was trying to diversify their economy to develop a new manufacturing industry, they may be unable to do it without some tariff protection.

RK 2 – Task l l Prepare an analysis of possible outcomes for Kazakhstan if it joins WTO State your opinion about it

For further information l The WTO Website : www. wto. org Some related websites of interest l OECD www. oecd. org l ITC www. intracen. org l World Bank www. worldbank. org

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