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  1. 1. C5 WORLD TRADE ORGANIZATION Copyright @ Oxford University Press 1 International Business R. M. Joshi
  2. 2. 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 2 Copyright @ Oxford University Press International Business R. M. Joshi
  3. 3. Significance of WTOThe World Trade Organization (WTO) is the onlyinternational organization that deals with global rules oftrade between nations. It provides a framework forconduct of international trade in goods and services. Itlays down the rights and obligations of governments inthe set of multilateral agreements. Copyright @ Oxford University Press 3 International Business R. M. Joshi
  4. 4. 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. Copyright @ Oxford University Press 4 International Business R. M. Joshi
  5. 5.  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. Copyright @ Oxford University Press 5 International Business R. M. Joshi
  6. 6. 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 Copyright @ Oxford University Press 6 International Business R. M. Joshi
  7. 7. Decision-makingWTO is a member-driven consensus-based organizationwhere all major decisions are made by its members as awhole. The WTO’s agreements have been ratified in allmembers’ parliaments.Unlike other international organizations, such as theWorld Bank and the IMF, in WTO the power is notdelegated to the board of directors or the organization’shead. Copyright @ Oxford University Press 7 International Business R. M. Joshi
  8. 8. Organizational Structure of the WTO Highest authority : The Ministerial Conference Second level : General Council Third level : Councils for each broad area of trade Fourth level : Subsidiary bodies Copyright @ Oxford University Press 8 International Business R. M. Joshi
  9. 9. 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 Copyright @ Oxford University Press 9 International Business R. M. Joshi
  10. 10. 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 Copyright @ Oxford University Press 10 International Business R. M. Joshi
  11. 11. General Agreement on Tariffs and Trade (GATT) Opening up of the industrial sector  Reduction in tariffs  Tariff bindings Copyright @ Oxford University Press 11 International Business R. M. Joshi
  12. 12. 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. Copyright @ Oxford University Press 12 International Business R. M. Joshi
  13. 13. 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’. Copyright @ Oxford University Press 13 International Business R. M. Joshi
  14. 14. Binding Against Further Increase of TariffsIn addition to elimination of all non-tariff measures bytariffication, all countries have bound all tariffsapplicable to agricultural products. In most cases,developing countries have given binding at rates thatare higher than their current applied or reduced rates. Copyright @ Oxford University Press 14 International Business R. M. Joshi
  15. 15. Domestic SupportUnder the Agreement on Agriculture, domestic policiesthat have a direct effect on production and trade have tobe cut back. The domestic support in the agriculturesector is categorized under Green, Amber, and Blueboxes. Copyright @ Oxford University Press 15 International Business R. M. Joshi
  16. 16.  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 Copyright @ Oxford University Press 16 International Business R. M. Joshi
  17. 17. Export SubsidiesThe agreement on agriculture prohibits export subsidieson agricultural products unless the subsidies arespecified in a member’s lists of commitments. Wherethey are listed, the agreement requires WTO membersto cut both the amount of money they spend on exportsubsidies and the quantities of exports that receivesubsidies. Copyright @ Oxford University Press 17 International Business R. M. Joshi
  18. 18. Standards and Safety MeasuresArticle 20 of the GATT allows governments to act ontrade in order to protect human, animal, or plant life orhealth, provided no discrimination is made and this isnot used as disguised protectionism. Copyright @ Oxford University Press 18 International Business R. M. Joshi
  19. 19. Agreement on Sanitary and Phytosanitary (SPS) MeasuresThe SPS measures sets out the basic rules on foodsafety and plant health standards. This allows countriesto set their own standards which have to be based onscience and should not arbitrarily or unjustifiablydiscriminate between countries where identical orsimilar conditions prevail. Copyright @ Oxford University Press 19 International Business R. M. Joshi
  20. 20. Agreement on Technical Barriers to Trade (TBT)This agreement complements with SPS measures andattempts to ensure that regulations, standards, testing,and certification procedures do no create unnecessaryobstacles to trade. Copyright @ Oxford University Press 20 International Business R. M. Joshi
  21. 21. Opening Up International Business Opportunities in TextilesFrom 1974, until the end of the Uruguay Round, theinternational trade in textiles was governed by theMulti-fibre Arrangement (MFA). This was aframework for bilateral agreements or unilateral actionsthat established quotas limiting imports into countrieswhose domestic industries were facing serious damagefrom rapidly increasing imports. Copyright @ Oxford University Press 21 International Business R. M. Joshi
  22. 22. Post-MFN Textile and Clothing ScenarioOn full integration into GATT and final elimination of quotas,the Agreement on Textiles and Clothing ceased to exist on 1January, 2005. This has opened immense opportunities andchallenges for the developing countries. Copyright @ Oxford University Press 22 International Business R. M. Joshi
  23. 23. 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. Copyright @ Oxford University Press 23 International Business R. M. Joshi
  24. 24. General Obligations and DisciplinesMode 1: Services supplied from one country to another.Mode 2: Consumers or firms making use of a service in another countryMode 3: A foreign company setting up subsidiaries or branches to provide services in another country, i.e. ‘commercial presence’Mode 4: Individuals travelling from their own country to supply services in another, i.e. ‘presence of natural persons’ Copyright @ Oxford University Press 24 International Business R. M. Joshi
  25. 25. Salient Features of GATS Most-favoured-nation (MFN) treatment Commitments on market access and national treatment Transparency Objectivity and reasonability of regulations Recognition International payments and transfers Progressive liberalization Copyright @ Oxford University Press 25 International Business R. M. Joshi
  26. 26. Protection and Enforcement of IPRsThe WTO’s agreement on Trade-Related Aspects of IntellectualProperty Rights (TRIPS), introduced intellectual property rules inthe multilateral trading system for the first time. TRIPS laysdown minimum standards for the protection of IPRs as well asthe procedures and remedies for their enforcement. It alsoestablishes a mechanism for consultations and surveillance at theinternational level to ensure compliance with these standards bymember countries at the national level. Copyright @ Oxford University Press 26 International Business R. M. Joshi
  27. 27. Curbing Unfair Marketing PracticesInternational market competitions get distorted mainly by unfairtrade practices, as: If the exported goods benefit from the subsidies If exported goods are dumped in overseas marketsThe agreements on Anti-Dumping Practices (ADP) and onSubsidies and Countervailing Measures (SCM) authorize importingcountries to levy compensatory duties on import of products. Copyright @ Oxford University Press 27 International Business R. M. Joshi
  28. 28. DumpingA 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. Copyright @ Oxford University Press 28 International Business R. M. Joshi
  29. 29. Agreements on Anti-dumping Practices (ADP)The WTO agreement on anti-dumping allows governments to actagainst dumping where there is genuine (‘material’) injury to thecompeting domestic industry. Copyright @ Oxford University Press 29 International Business R. M. Joshi
  30. 30. The Agreement on Subsidies and Countervailing Measures (SCM)This agreement disciplines the use of subsidies andregulates the actions countries can take to counter theeffects of subsidies by other countries. It can launch its own investigations and ultimatelycharge extra duty (known as ‘countervailing duty’) onsubsidized imports that are found to be hurting domesticproducers. Copyright @ Oxford University Press 30 International Business R. M. Joshi
  31. 31. Category of Subsidies included under SCMProhibited Subsidies: Those subsidies that require recipients tomeet certain export targets, or to use domestic goods instead ofimported goods.Actionable Subsidies: Subsidy has an adverse effect on itsinterest 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 country’s domestic market. Copyright @ Oxford University Press 31 International Business R. M. Joshi
  32. 32. Emergency Protection from ImportsA WTO member may restrict imports of a producttemporarily (take ‘safeguard” actions) if its domesticindustry is seriously injured or threatened with injurycaused by a surge in imports. Copyright @ Oxford University Press 32 International Business R. M. Joshi
  33. 33. Attempting to Reduce Non-Tariff BarriersGrowing use of unconventional Non-Tariff Measures(NTMs), such as health and safety measures, technicalregulations, environmental controls, customs valuationprocedures, and labour laws by developed countries hasbecome a major barrier to market access to exports fromdeveloping countries. Copyright @ Oxford University Press 33 International Business R. M. Joshi
  34. 34. Import Licensing ProceduresThe agreement attempts to simplify and bringtransparency to import procedures. It requires governments to publish sufficientinformation for international traders to know how andwhy licences are granted. Copyright @ Oxford University Press 34 International Business R. M. Joshi
  35. 35. Customs ValuationThe WTO agreement aims for a fair, uniform, and neutral system for the valuation of goods Copyright @ Oxford University Press International Business R. M. Joshi for 35
  36. 36. Pre-shipment InspectionThe pre-shipment inspection agreement placesobligations on governments that use pre-shipmentinspection such as non-discrimination, transparency,protection of confidential business information,avoiding unreasonable delay, use of specific guidelinesfor conducting price verification, and avoiding conflictsof interest by the inspection agencies. Copyright @ Oxford University Press 36 International Business R. M. Joshi
  37. 37. Rules of Origin‘Rules of origin’ are used as the criteria to define where a productwas made. The Rules of Origin Agreement requires WTOmembers to ensure that their rules of origin are transparent; thatthey do not have restricting, distorting, or disruptive effects oninternational trade. The Rules are administered in a consistent,uniform, impartial, and reasonable manner. Copyright @ Oxford University Press 37 International Business R. M. Joshi
  38. 38. Agreement on Trade Related Investment Measures (TRIMs)The TRIMs stipulates that no member shall apply anymeasure that discriminates against foreigners or foreignproducts. It also outlaws investment measures that leadto restrictions in quantities and measures requiringparticular levels of local procurement (‘local contentrequirements’) by an enterprise. Copyright @ Oxford University Press 38 International Business R. M. Joshi
  39. 39. Plurilaterals Agreements Fair trade in civil aircraft Opening up of competition in government procurement Copyright @ Oxford University Press 39 International Business R. M. Joshi
  40. 40. Ensuring Transparency in Trade PolicyWTO’s Trade Policy Review Mechanism (TPRM) aims to achieve transparency in regulations in the following ways: Governments have to inform the WTO and fellow- members of specific measures, policies, or laws through regular ‘notifications’. The WTO conducts regular reviews of individual countries’ trade policies. Copyright @ Oxford University Press 40 International Business R. M. Joshi
  41. 41. Settlement of International Trade DisputesDispute settlement is the WTO’s unique contributionwhich provides effectiveness to the rule basedmultilateral trading system. The WTO’s procedure forsettling disputes makes the trading system more secureand predictable. Copyright @ Oxford University Press 41 International Business R. M. Joshi
  42. 42. Dispute Settlement ProcessTime Taken Stages60 days Consultations, mediation, etc.45 days Panel set up and panellists appointed6 months Final panel report to parties3 weeks Final panel report to WTO members60 days Dispute Settlement Body adopts report (if no appeal)Total One Year (without appeal)60–90 days Appeal report30 days Dispute Settlement Body adopts appeals reportTotal One year 3 months (with appeal) Copyright @ Oxford University Press 42 International Business R. M. Joshi
  43. 43. Ministerial Conferences Singapore Ministerial Conference (9–13 December, 1996) Geneva Ministerial Conference (18–20 May, 1998) Seattle Ministerial Conference (30 November - 03 December, 1999 Doha Ministerial Conference ( 9–14 November, 2001) Cancun Ministerial Conference (10–14 September 2003) The Hong Kong Ministerial Conference (13–18 December, 2005) Copyright @ Oxford University Press 43 International Business R. M. Joshi
  44. 44. The Deadlock in WTO NegotiationsDoha work programme were suspended in July, 2006.mainly due to lack of consensus between developingand developed countries, and the complexity of issuesinvolved multilateral negotiations other get stalled. Copyright @ Oxford University Press 44 International Business R. M. Joshi
  45. 45. 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. Copyright @ Oxford University Press 45 International Business R. M. Joshi