Most Favored Nation (MFN), National Treatment, WTO Principles a…
Pisat 1Based on your review of the WTO website and other sources, please address thefollowing questions in brief:11. Define and discuss the importance of these two concepts related to "non-discrimination" under the WTO:Most Favored Nation (MFN)National Treatment“MFN means that every time a country lowers a trade barrier or opens up amarket, it has to do so for the same goods or services from all its trading partners— whether rich or poor, weak or strong.”3Most Favored Nation (MFN) is the term used to describe the code of equaltreatment which is given by a WTO member nation to the other member nations. Thisterm refers to the nation equally favouring all member nations with regards to itstrade policies (Tariffs / Quotas / NTB’s etc). Further this nation is also expected tonot use discriminatory policies between domestic and foreign products / services /labour. Having met these 2 conditions; the term MFN (no discrimination amongstother members and or amongst domestic and foreign products) is said to be inexistence.National Treatment can be considered as an extension of the MFN wherebythere is no discrimination between goods; intellectual capital; services; patents;copyrights; trademarks etc of foreign and domestic origin. It is a key point in the 3 bigWTO agreements (General Agreement on Tariffs & Trade – GATT; General Agreementon Trade in Services – GATS & Trade Related aspects of Intellectual Property Rights –
Pisat 2TRIPS). Though the domestic product may not be subject to taxes; foreign productscan be charged customs duty before they hit the domestic markets3.2. How are developing countries treated differently than developed countries under theWTO? Describe some of the key differences, and discuss whether lenient treatment fordeveloping countries good or bad for their economies? Explain based on what you havelearned thus far in this course.1Developing countries currently seek differential treatment (enjoy exceptions)to the rules followed by other member countries of the WTO. They benefit fromspecial privileges and compassion in their trade conduct. Developed countries mayalso extend these developing countries kid glove treatment. Under the WTO; thesedeveloping countries may be subject to many of the below mentioned benefits / keydifferences in treatment3:1. Time Extensions: They are given extra time to hold their end of the bargainof responsibilities and duties towards other WTO members.2. Leverage To Increase Trade & Generalized System of PreferencesProgrammes: They are given a free hand access to global markets wherebythey can increase their trading opportunities. Here; developed countriesmay also lower their trade barriers preferentially for products fromdeveloping countries.3. Consideration by developed countries: They are given specialconsideration by developing countries when rolling out an international /domestic policy pertaining to their country as per WTO directive.
Pisat 34. Helping Hand: The developing country may be given a helping hand fromthe developed country to establish / strengthen their infrastructure /ecosystem etc.5. Tagging of Developing & Developed Countries: Preferential arrangementsamong developing countries such as MERCOSUR (the Southern CommonMarket in Latin America), the Common Market for Eastern and SouthernAfrica (COMESA), and the ASEAN Free Trade Area (AFTA) etc help thedeveloped countries enable the developing countries to get on the trackaggressively.6. Others: Integrating least-developed countries into the multilateral tradingsystem; technical cooperation with them; providing legal and technicalassistance to mature from a developing to a developed country.WTO may extend a more generous leverage using the above points if the country is aleast under-developed one.Now whether providing such leniency to developing countries benefits or harmstheir economy is a matter of debate. It is similar to the classic argument of havingfree or restricted trade. Leniency here can be also interpreted as a NTB where onemay dispute that having a special set of rules for few nations is not fair to the rest ofthe world nations. Protectionist ideas to promote domestic production, employment,government revenue; protecting the infant / dying industries often come at a cost ofnet national loss. Since clogging up one nations trade by such NTB’s (leniency) alsoaffects trade of the other nation (assuming there are only 2 countries in the world fora moment); the world is essentially worse off and harmed by this special treatment.
Pisat 4However, since in reality world economics defies theory; an ideal scenario would beputting a benchmark on dates to gradually lifting these leniencies of trade and makingthem common across. This way; the developing countries (similar to infant industries)can aggressively target getting on track towards becoming a developed country ratherthan depending on extensions and special treatments.3. Define and explain how nations work together through concessions and reciprocity toreach trade agreements at the WTO (or previously the GATT) through trade rounds,such as the Uruguay Trade Round.1Concessions refer to the specific tariff commitments made by WTO membercountries towards tariff reduction on specific goods and commodities. Concessions aregenerally used to enable powerful trade in multilateral trade agreements4.Concessions5are usually tabulated in a schedule for specific goods and services anddefine the maximum applicable tariffs for those goods. In the case of agriculturalproducts, these concessions also cover tariff rate quotas, limits on export subsidies,and domestic support.Reciprocation in WTO terms refers to the return of favors from one WTOmember nation to another who was earlier on the receiving end of leniency in trade /concessions / lower import duties / flexible barriers etc. Often defining a perimeterto the extent of such reciprocation is called Reciprocity6 & 7. Reciprocity is atraditional principle of GATT/WTO, but is practicable only between developed nationsdue to their generally matching economies.
Pisat 5In trade rounds such as the Uruguay Trade Round (UTR); WTO membercountries come together for forming Multilateral Trade Agreements. The objectivesmay vary from moderating subsidies to restricting foreign investment etc. In UTR; thecountries came together with an objective of opening banking; insurance, reducingagricultural export subsidies etc. However; the European Union (EU) & USA couldn’tcome to consensus on trade of agricultural products. These differences were settledby The Blair House Accord8(extended round of discussions to come to commonconsensus). Here well negotiated concessions for developing countries and reciprocityin return finally resulted in the most successful and the largest trade round of alltimes.4. Describe one key issue being discussed in the current trade round, the DohaDevelopment Agenda. Describe the issue and why it is difficult to reach agreement onthe issue among the countries of the WTO.1Doha Development Agenda (DDA) is the current trade deal negotiation held bythe WTO aiming at reducing global tariffs and promoting free trade. The key concernarea has been Free Trade of agricultural products. India and USA had their hornslocked on the issue of protecting poor farmers by allowing countries to impose anextra tariff on certain agricultural goods to safeguard against price drop of thosegoods. India wanted to further protect its agricultural interests and blamed USA ofsetting the extra tariff as such that the developed countries would end up beingfavoured as opposed to the developing ones (like India). Further Brazil and othercountries backed out of the deal leading to the world blaming India for the failure ofthe DDA.
Pisat 6This difference was necessarily caused because of the agricultural products inquestion. USA being a developed nation may have been trying to protect its scarceagricultural industry while India being a developing country was trying to get a biggerpiece of the global business with their strong agriculture. Hence such sensitive topicstake time to reach the best possible conclusion stalling the talks in the meanwhile.105. How are disputes between trading nations resolved at the WTO? What are the mainsteps in the WTO dispute resolution process? What happens if a country violates aWTO ruling?1WTO contributes to the world economies by resolving trade disputes of membernations. The WTO strictly functions on a set of well defined rules and deadlines toachieve decisions in resolving a case. The following steps are taken by WTO to resolveconflicts:1. Stage 1: Countries try to resolve the issue with each other by havingconversations themselves (up to 60 days).2. Stage 2: If the above fails; then in the next 45 days; a panel is set up topreside over the dispute. (Given 6 months to arrive at a conclusion;however it may be shortened to 3).3. Pre-First Hearing: Each side represents its case in writing to the panel.4. First Hearing: The complaining country, the accused country, and otherstake holding nations, present their case at the panel’s first hearing.5. Rebuttals: Submission of written and oral rebuttals to claims andaccusations happens.
Pisat 76. Consultation: If technical aspects are discussed; the panel may consultexperts and ask for an advisory report.7. First Draft: Panel submits each of their findings and facts sheets of theargument to disputing countries and asks for a view / comment.8. Interim Report: Panel concludes and shares a conclusion report with eachside and gives them a week to review.9. Review: In case of conflict; another 2 week extension is given to argueabout the conclusion. Panel may hold additional meetings.10. Final Report: Final report is submitted to the disputing countries andcirculated with WTO members (T+3weeks). If there are violations of theWTO policies brought to light; the WTO may make recommendations torectify and align the solution to comply.11. Report becomes a ruling: The report becomes an official ruling within60 days; members however still reserve rights to make appeals.If a country violates WTO ruling; the WTO gives the country time to comply. In case ofnon compliance; the WTO may reduce the concessions and special tariffs that thecountry enjoys from other member nations. Penalties may be enforced wheredeviation is serious. The ultimate step would be barring the country from being a partof the WTO.
Pisat 8Bibliography / End Notes:1. Questions for the Essay.2. My inferences & learning’s from the textbook on International Economics (15thEdition) by Thomas A. Pugel. & classes conducted by Dr. Charles Krusekopf &Mr. Hugh Stephens.3. Information Source:http://www.wto.org/english/thewto_e/whatis_e/who_we_are_e.htm4. Information Source:http://useconomy.about.com/od/glossary/g/multilateral.htm5. Information Source:http://www.businessdictionary.com/definition/concession.html6. Information Source:http://womeninbusiness.about.com/od/marketingpsychology/a/prineciprocity.htm7. Information Source:http://www.businessdictionary.com/definition/reciprocity.html8. Information Source:http://www.economicshelp.org/dictionary/b/blair-house-accord.html &http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact5_e.htm9. Information Source:http://www.wto.org/english/docs_e/legal_e/ursum_e.htm10.Information Source:http://en.wikipedia.org/wiki/Doha_Development_Agenda#Collapse_of_negotiations_211.