TarifficationTariff BindingTariff cutsReduction in subsidies and domestic support
The WTO organizes around 100 technical cooperation missions to developing countries annually. It holds on average three trade policy courses each year in Geneva for government officials. Regional seminars are held regularly in all regions of the world with a special emphasis on African countries. The WTO set up reference centres in over 100 trade ministries and regional organizations in capitals of developing and least-developed countries, providing computers and internet access to enable ministry officials to keep abreast of events in the WTO in Geneva through online access to the WTO’s immense database of official documents and other material.
Impact of WTO policies on developing economies
IMPACT OF WTO POLICIES
ON DEVELOPING COUNTRIES
Globalisation and development
5th November 2013
THE WTO: ITS EVOLUTION
• The ITO and GATT 1947
• Filling the gap left by still born ITO
• De facto international trade organisation
• Success and failure
• Uruguay Round (1986-1993): the longest round ever
Punta del Este Declaration
Proposals for a MTO (1990)
Marrakesh Agreement (1994)
WTO since 1.1.1995
WTO-A BRIEF PROFILE
159 member nations (over 97% of world trade).
25 ‗observer‘ countries.
The World Trade Organization (WTO/GATT)
Duration of GATT rounds and number of countries involved
To k y o
U ru g u a y
num ber of countries at start
D illo n
-December 3-6, 2013 in
ECONOMIC GLOBALISATION AND WTO LAW
• Economic Globalisation and International Trade
• What is meant by economic globalisation?
• Gradual integration of national economies into a global borderless economy
• Influenced by (and their democratisation)
• forces of technology
• of finance
• of information
• Why is it under critique?
Reasons and reactions
Globaphiles vs globaphobes
Expansion of cross-border economic interaction: more trade, more welfare
Erosion of local control, autonomy and identity
• WTO as vehicle of freer and open trade?
• Balancing of interests necessary
• Global economic governance
ECONOMIC GLOBALISATION AND WTO LAW
• Figures on trade (last 50 years) show changes in trade developments
General increase of world trade
Increase of share of services in relations to goods
decline of trade in Europe
raise in Latin-America, Africa and Asia
48 LDC account to only 0.5 percent of world trade
China, India and Mexico major suppliers of cutting/-edge technologies and laborintensive goods
• Increased trade with companies and foreign direct investment
• International trade rules: reasons
• Restraining protectionism
• More security and predictability
• Governance in globalised economy
URUGUAY ROUND REQUIREMENTS: DIFFICULTIES
• Intellectual Property (TRIPS) : Time frame-5 years
• TRIMS (TRIMS) :
o Minimum local content and trade balancing ;
o Flexibility to choose investment promotion policies;
o Time frame (by 1st Jan 2001)
o Sanitary and phytosanitary measures and technical barriers to trade (SPS) :
o No consultation
o Difficulty to meet global standards
o Market Access:
o Agricultureo Extremely high tariffs
o Escalated tariff on processed foods
o Trade distorting subsidies
o Textiles and Clothing
o Quota (Multi fibre agreement)
o Transitional Safeguards
o Anti dumping actions
o Discriminatory rule of origin
• Launched in Doha (Qatar) in November 2001
• Doha Development Agenda
• To postpone the deadline for some developing countries to eliminate export
subsidies and for least-developed countries to provide protection for
pharmaceutical patents and test data, and to tackle problems faced by countries
unable to make generic versions of patented medicines.
• Areas of Concern:
Implementation-related issues and concerns
TRIPS and issues
And public health
And geographical indications
Protection of traditional knowledge and folkore
SUBJECTS IN DOHA DECLARATION
Agriculture (par 13, 14)
Services (par 15)
Non-agricultural products (par 16)
TRIPS (par 17-19)
Relationship between trade and investment
Interaction between trade and competition
policy (par 23–25)
Transparency in government procurement
Trade facilitation (par 27)
WTO rules: anti-dumping and subsidies (par
WTO rules: regional trade agreement (par 29)
Dispute Settlement Understanding (par 30)
Trade and environment (pars 31–33)
Electronic commerce (par 34)
Small economies (par 35)
Trade, debt and finance (par 36)
Trade and technology transfer (par 37)
building (pars 38–41)
• Least-developed countries (pars 42, 43)
• Special and differential treatment (par 44)
WTO Ministerial Meeting in Cancun
Developing countries, led by Brazil, China, and
India, were unwilling to move forward without
meaningful cuts in agricultural subsidies.
Moreover, they never fully accepted to the
idea of the Singapore agenda :
--Trade and Investment
--Trade and Competition
--Transparency in Government Procurement
Two issues caused the negotiations to
break down, The developed world :
The developed world would not
compromise on the issue of agricultural
The developed world called for a
liberalization of foreign investment rules
to improve transparency, reduce red
5th Ministerial Conference of the WTO
Cancun, September 9-14, 2003
WHY DO DEVELOPED WORLD DOMINATE WTO?
• Arm Twisting Technique
• Low level of financial and knowledge resources among developing economies
• Negotiations and decisions are dominated by the developed economies
• The developing economies are not consulted/considered while formulating policies
• WTO remains ineffective in imposing it‘s disciplines on developed economies
WHAT IS A DEVELOPING COUNTRY ?
• No definitions
• Members declare themselves
• They are challengeable
• Mostly the standards of World Bank
considered for classification of countries.
• There are provisions for special, differential and
more favorable treatment for the developing
WB classifies its member countries on the basis
of GNI per capita.
Economies are divided according to 2012 GNI
per capita, calculated using the World Bank
World Bank Atlas method :
The groups are:
low income: $1,035 or less; lower middle
income: $1,036 - $4,085; upper middle
income: $4,086 - $12,615; and high
income:$12,616 or more.
With this classification, 2/3 rd of the member
countries are developing countries
WHY DEVELOPING ECONOMIES ARE TOO SENSITIVE ?
• Agriculture is the major source of livelihood
• Disturbance leads to breaking down of agricultural ecosystem
• Vicious cycle
• Poor people are fragile & distress migration followed by starvation
• Difficult to revive
WTO AND DEVELOPING COUNTRIES
• Over three quarters of WTO members are developing or least-developed
• WTO agreements contain special provisions for them
Longer time periods to implement agreements and commitments
Measures to increase their trading opportunities
Support to help them build the infrastructure for WTO work
Implement technical standards
Technical Assistance and Training
WHY ARE DEVELOPING COUNTRIES IMPORTANT?
• Change in the equilibrium of power in the
The emerging powers gain importance
• 2/3 of the WTO members are developing
HOW WTO DEALS WITH DEVELOPING COUNTRIES?
• In the agreements: more time , better terms
• Legal Advice: a secretariat service
• Gainful opportunities for developing countries:
• Fundamental reforms in agricultural trade
• Phasing out quotas on developing countries exports of textiles and clothing
• Reductions in customs duties on industrial products
• Expanding the number of products whose customs duty rates are ―bound‖ under the WTO, making the rates
difficult to raise
• Phasing out bilateral agreements to restrict traded quantities of certain goods —these ―grey area‖ measures
(the so-called voluntary export restraints)
• Tariff peaks (37% Vs 40%) and Tariff escalation
• Erosion of preferences
• The ability to adapt (difficult for lDC)
SPECIAL AND DIFFERENTIAL PROVISIONS
• Longer time periods for implementing Agreements and commitments,
• Measures to increase trading opportunities for these countries,
• Provisions requiring all WTO members to safeguard the trade interests of
• Support to help developing countries build the infrastructure for WTO
work, handle disputes, and implement technical standards, and
• Provisions related to Least-Developed country (LDC) Members
SPECIAL & DIFFERENTIAL TREATMENT. DO WE NEED IT?
• Yes !
• Lack of financial & human resources to fulfil their commitments.
• S & D:
o More flexible terms within specified time limits: for example, longer transition
periods, smaller commitments (for example the commitments on agriculture)
o Clauses which say in broad terms that developed countries should help
developing countries in specific areas (such as technology transfer under
intellectual property protection) but without defining exactly what action is
• Did S & D yield the desired result?
• NO.. S & D were usually insufficient and that the broader requirements of
category are too vague and often ignored.
• Pro-liberalization lobbies
• Comfortable with current regulation
• The WTO is not useful to liberalize services
• Tariffs below max
• Increase in the price of commodities
• Inefficient Market and global economy
STAGNATED NEGOTIATIONS: STRUCTURAL CAUSES
• Change in the equilibrium of power in the global
The emerging powers gain importance
GATT Institutional inertia governance problems
• High Expectations: Development Round and UR
2/3 of the WTO members are developing
The G-20: joint group with offensive interests
What’s at stake?
INCOME OF A FULL
SERVICES) BY COUNTRY
AND REGION IN 2015
WTO: BALANCE AGAINST THE DEVELOPING WORLD
Double standard of US.
US Domestic Aid in 2012-$100 Bn and India -$20
Avg supply of subsidized food-US-358
India has been criticized by WTO for ―creating
a massive new loophole for potentially
unlimited trade-distorting subsidies.‖
India‘s subsidies for feeding its hungry are
being blamed for distorting trade in agriculture
while the US, which provides six times more
subsidies than India for feeding its hungry, is
seen as doing humanitarian service.
Peace Clause (Art 13) : Expired in 2003
Procurement price:10% of the total production,
and refrain from increasing the wheat
procurement price in future.
No Penalisation from WTO on US and other
IMPACT ON INDUSTRIALIZATION: A POLICY PERSPECTIVE
1. Tariff liberalisation under NAMA
• Under the emerging NAMA rules in the Doha round negotiations, developing countries, with the exception of LDCs, have to
reduce their import tariffs on industrial products and bind tariff rates below a certain ceiling. Developing countries have the option,
however, of applying deeper cuts in tariff lines in exchange for greater flexibilities and vice versa. Flexibilities are in the form of
exempting a certain percentage of sensitive product lines from tariff cuts as long as their import shares in total NAMA imports do
not exceed a certain threshold. However the exemption of a whole sector from tariff cuts will not be possible. This implies that nonLDC African countries will have less room for pursuing import-substitution strategies behind high tariff barriers or through gradual
and selective tariff liberalisation. This is further compounded by the insertion of the "national treatment" principle in WTO laws,
whereby foreign firms and foreign goods are to be granted the same treatment as local firms and locally produced goods in the
• Developing countries will apply tariff cuts according to a "Swiss" formula. Countries that apply the deepest tariff cuts will be able to
"make smaller or no cuts in 14% of its most sensitive industrial tariff lines, provided that these tariff lines do not exceed 16 percent of
the total value of its NAMA imports".
• That country can also keep "6.5 % of its tariff lines unbound or exclude them from tariff cuts, provided they do not exceed 7.5%
percent of the total value of its NAMA imports" (WTO). LDCs will not face tariff reductions but will have to raise the percentage of
their tariff lines that are bound.
• The WTO text mentions that additional flexibilities will be negotiated at a future date for South Africa, Botswana, Lesotho, Namibia,
Swaziland and members of the South African Customs Union (SACU). According to the WTO, "the tariff reductions will be
implemented gradually over a period of five years for developed members and ten years for developing members, starting 1
January of the year following the entry into force of the Doha results".
THE WTO AND ITS IMPACT ON INDUSTRIALIZATION
• Proponents of NAMA reforms argue that, in a low-tariff world, developing countries will benefit in the
form of increased market access for their industrial products to other countries, especially developed
countries. For instance, in developed countries the proportion of industrial imports entering on a dutyfree basis has jumped over the last fifteen years from 20 % to 44%.
However, critics of NAMA reforms argue that the emerging rules will lead to de-industrialisation in
countries that are in their early stages of industrialisation (Shafaeddin 2006).
• Furthermore, they argue that the parameter of interest for developing countries should not be the
average industrial tariff rate imposed by developed countries on imports but the actual rates imposed
by the latter on the exports of interest to developing countries. It is not clear that such rates have been
considerably lowered in return for increased market access.
• There is also the fear that NAMA liberalisation will lock poor developing countries into their current or
existing patterns of export specialisation. In order to build dynamic comparative advantage in higher
value-added activities, entrepreneurs need to be rewarded with higher expected returns in exchange
for the higher risks involved in undertaking strategic investments in new industries and new technologies.
However the emerging trade rules will make it harder for developing countries to turn to selective tariffs
and subsidies to provide such returns to their entrepreneurs (Shafaeddin 2006).
THE WTO AND ITS IMPACT ON INDUSTRIALIZATION
• With respect to the use of subsidies as a tool for promoting industrial development, under
WTO rules subsidies linked to either export performance (export subsidies) or the use of
domestic over imported goods (local content subsidies) are prohibited, except for LDCs and
countries with less than US $1,000 GNI per capita.
• When linked to export performance, export subsidies can provide appropriate incentives to
domestic firms to invest in building their competitiveness rather than stay complacent.
However, such type of subsidies can no longer be used. Other types of subsidies, for
example production subsidies, are allowed but are now actionable which means that their
use can be challenged if deemed to damage the interests of other parties. In importcompeting industries with high sunk costs, there may be a case for subsidizing production by
domestic infant firms, albeit temporarily, in order to promote greater entry and more
competition in the long-run. As a result of WTO rules, it is now more difficult to nurture local
infant industries through subsidies.
THE WTO AND ITS IMPACT ON INDUSTRIALIZATION
3. Investment measures
• The Trade-Related Investment Measures (TRIMs) Agreement under the WTO prohibits countries
from using local content or trade balancing requirements. In addition, as discussed in the
preceding section, countries cannot subsidise firms to favour use of domestic inputs over
• This means that these industrial policy instruments used by currently advanced and emerging
economies, are no longer available to the non-industrialised countries. While Brazil for
instance was able to use local content requirements to establish a local auto manufacturing
industry, Indonesia had to review the local content provisions of its National Car Program in
1999 under the WTO (DiCaprio and Gallager, 2006).
• Under the TRIMs agreement, countries can no longer use local procurement programs to
minimize import leakage rates, optimize the domestic value-chain and promote the building
of production linkages across sectors in their industrial policy programs.
• TRIMs also prohibits the use of performance requirements in FDI policies for the purpose of
maximising benefits from FDI such as promoting use of local industrial products, inserting local
enterprises in the production chain of transnational corporations (TNCs) and facilitating
technology transfer to local suppliers.
IMPACT ON INDUSTRIAL SECTOR : SUMMARY
• Significant reduction in industrial tariffs
• Tariff binding (progressively high)
• De-industrialization phase : as a result of cheaper imports from
• Doha round : strong pressures from developed world for a steep cut on the
tariff rates (non linear formula) & almost 100% tariff binding
ACTUAL WTO IMPACT ON POLICY SPACE
• Membership of GATT/WTO has not had a major impact on bindings or
tariffs of developing countries
• Other sources of tariff and NTB reforms (unilateral and regional)
• Very limited use of industrial and export subsidies
• Evidence of greater WTO influences on new members (e.g. Saudi Arabia,
• Concerns about future tightening and stricter implementation of rules
PRE- AND POST REFORM NTBS AND EXCHANGE RATE DISTORTIONS
Various years, usually 1980s
(2) Various years, usually early 1990s
Source: Dean, Univ Nottingham (1995)
OVERALL ASSESSMENT AND CONCLUSIONS
• WTO has not significantly affected developing countries‘ policy space
• The effects (constraints and enhancements) may increase in future
• but scope for phased or gradual affects and differentiation within
• Many of the key pro-development issues are outside the WTO agenda
• improving governance, institutions, human capital and infrastructure