Understanding WTO and
R S Deshpande
National Fellow ICSSR
Former Director ISEC
A. What is the WTO?
The World Trade Organisation (WTO)
Established on 1st January 1995
As a result of the Uruguay Round negotiations (1986-
Located in Geneva, Switzerland
Members: 149 countries
At its simplest:
“A global organisation dealing with rules of
trade between nations”.
Evolution of the WTOPredecessor of the WTO – The GATT ‘47
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-
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
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
Also provides technical assistance and training for
Cooperates with other international organisations on
subjects of mutual interest
Principles of the world trading
system under the WTO
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
Two Principles : Developed –Developing and Under-
Developed Nations; Differential Time Treatments
Organisational structure of the WTO
Ministerial Conference- The apex body for decision making
(meets every 2 years). Composition:-ministerial
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
Committees on special subjects, Committees functioning under
the Councils and Committees for the Plurilateral Agreements.
Decision making is by consensus. If consensus is not possible
decisions will be taken by a majority vote.
The Ten benefits
1.The system helps promote peace
2. Disputes are handled constructively
3. Rules make life easier for all
4. Freer trade cuts the costs of living
5. It provides more choice of products and
6. Trade raises incomes
7. Trade stimulates economic growth
8. The basic principles make life more
9. Governments are shielded from lobbying
10.The system encourages good governments
THE 10 MISUNDERSTANDINGS
1. WTO dictates
2. Blindly for trade
3. Ignores development
6. Wrecks jobs
7. Small left out
8. Tool of lobbies
9. Weak forced to join
Four main Principles
Most Favoured Nation –
MFN: 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
There are permitted exceptions to the MFN rule:
for e.g. free trade areas/customs unions and preferential
[The principle of MFN is also found in GATS(Art.2) and TRIPS (Art.4)]
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
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
- Protection of the domestic industry by tariffs only.
- Reinforced through rules which prohibit use of
(Art 11 GATT).
Limited exceptions are allowed e.g. for BOP reasons (Art
Tariff Concessions- negotiations shall be aimed at
reducing tariffs (Preamble and Art. 28bis GATT). Tariffs
shall also be bound against further increases [Art 2.1(b)
(Tariff concessions are recorded in schedules of concessions)
“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)
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.
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 for foreign films)
- limitations on the participation of foreign capital or restrictions on the
type of legal entity (e.g. joint venture)
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
WTO: Benefits for business
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
History of Negotiations
# Date Host City
1st 9 - 13 December 1996 Singapore
2nd 18 - 20 May 1998 Geneva , Switzerland
30 November - 3 December
Seattle , United
4th 10 - 14 November 2001 Doha , Qatar
5th 10 - 14 September 2003 Cancun , Mexico
6th 13 - 18 December 2005 Hong Kong
30 November - 3 December
Geneva , Switzerland
15 December - 17
Geneva , Switzerland
 Bali, Indonesia
The Uruguay Round
The Agreement establishing the WTO Its Annexes
1A - GATT 1994 , related agreements (e.g. Agreements
on Agriculture, Subsidies etc.) and texts
1B- General Agreement on Trade in Services (GATS) and
1C- 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)
Important Aspects of Agreement on
Components Specific Recommendations
1. Market Access i. Tarrification- change from non-tariff
to tariff, thereby rationalising the
ii. Negotiable restrictions on tariff and
binding lines drawn for tariffs.
iii. Guaranteed access at a pre-decided
share of domestic market.
iv. Special safeguard measures for
v. Safeguards against eventualities like-
import surge, world price fluctuations
and developing economies.
i. Defined limits on budget
expenditure on existing
export subsidies. Phased
programme to reduce it.
ii. Ban on introducing new
iii. Adherence to food aid rules.
Genuine food aid to be
exempted from trade
iv. Other subsidies should not
be applied that would
undermine the cut in export
v. Export credit and credit
guarantees to be covered
under a separate agreement.
i. Reduction in total trade
ii. Separate treatment for
iii. Exemption for
based on Aggregate
Measure of Support.
iv. Direct payments under
programme not subject
v. “Green Box” defined
for allowable subsidies.
Domestic Support: Encourages further shift away
from trade-distorting measures and policies.
However certain subsidies are allowed under the
agreement- the Green Box and Amber Box
Green Box includes expenditures on:
Support for research
Control of Pests and Diseases
Training, Extension & Advisory services
Public stock for Food Security
Direct Payment to Producers
Farm Income Insurance
Safety Nets & Disaster Management
Investment Subsidies and Agricultural
input services to Resource Poor Farmers
Amber Box Measures excluded from
“de minimis” support; support not exceeding 5%
of the value of production of individual products
of the value of total agricultural production. For
developing countries, the level is 10%.
Certain measures to encourage agricultural and
rural development in developing countries,
including generally available investment
subsidies, subsidies to low-income producers,
and support to diversification away from
growing illegal narcotic crops; and
certain direct payments under production-
limiting programmes. (Blue Box).
Doha Round In Brief
Launched in Dec.2001 in ministerial level meeting in Doha
List 21 subjects; original deadline Jan 2005; extended up to Dec 2006
Round included several Meetings-
Ministerial : Cancun (2003); Hong Kong (2005);
Other: Geneva (2004,2006,2008); Paris (2005); Potsdam (2007)
Formation of different interest groups
Developed nations ( US; EU; Japan)
Developing nations (India, Brazil, China, South Africa & South Korea)
Differences between interest groups
Between US & EU (over agricultural subsidies as trade barrier)
Between Developed and Developing Nations
Between Developing Nations (Exporters vis -a- vis Importers)
The talk collapsed in Dec. 2008 over
Reduction of industrial tariffs and non-tariff barriers
Services and trade remedies
Key Issues in Doha Round
Market Access and Agriculture
Rules on export subsidies, domestic support, and Tariff cuts.
Hong Kong Meeting (2005)- consensus on elimination of farm export
subsidies by 2013 (2006 for cotton export subsidies), and modalities for
tariff cuts, with four ranges of tariffs, each being subjected to a different
Non-Agricultural Market Access
Considerable asymmetry in tariff levels between countries and across
sectors within countries. Tariffs are quite high in developed countries.
included provision of bound tariffs; settlement mechanism in which
developed countries would offer more in agriculture, services, and rules;
flexible provisions to take in to account the special needs & interests of
Market access to services like financial services, telecoms, energy services,
express delivery and distribution services. But, decision left to the state to
decide which sectors it wants to open to foreign companies and to what
To open, improve and clarify the rules on regulations, the poorest
countries and flexibilities.
• Developmental Issues
Access to Patented Medicines – relates to Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS). The issue involves the
balance of interests between the pharmaceutical companies in
developed countries that held patents on medicines and the public
health needs in developing countries.
Special and Differential Treatments to developing countries -
Implementation Issues - market access, investment measures,
safeguards, rules of origin, and subsidies and countervailing measures,
Trade Facilitation- to support the capacity of developing countries to
implement trade liberalization and structural change. It could potentially be
extended to all activities involved in the international movement of goods
and services, such as building transport infrastructure and facilities,
operating trade-related services such as telecommunications, and providing
specialized legal and insurance services.
Rules Negotiations - clarifying and improving WTO disciplines and
procedures on fisheries subsidies as well as regional trade agreements.
Dispute Settlement -
Failure of Doha Round
Divergent Interests Groups
Heterogeneity across the newer group and between old
Belonging to different stages of development;
different perceptions of trade-off between global markets and
issues of national interest; developed countries for deeper
integration and liberalisation, whereas new participants for
greater special safeguards against import surge.
Inherent conflict of interest – in negotiation agenda on
elimination of price-distorting policies, harms the interest of net
exporters (low income for farmers) and importers of commodities
Shifting national priorities –
structural change in developing countries warranted both
better access to markets (developed country) in
manufacturing and agriculture and safeguards against
vulnerabilities. Whereas, developed countries continued to
insist on greater market access and enforcement of IPRs.
Issues in Bali Negotiation
Trade facilitation –
Put forward by developed nations (particularly, US and EU with a large
export interest). Smoothening cross-border trade by removing red tape,
improving infrastructure and harmonising customs procedures, is on
Trade and Innovation-
how open trade and innovation work together and how new
technologies have changed the traditional way of doing business or
whether technological innovation has changed the way we trade, and if
whether trade has helped countries to innovate?
how innovation can enhance the trading capacities of developing
countries and create trade opportunities.?
how trade can keep up with the rapid evolution of technology?
Innovation and international
competitiveness will be the theme of the
debate on the second day of the Forum.
Exchange views on how open trade and
innovation work together and how new
technologies have changed the traditional
way of doing business.
A total of 16 sessions on the third day of
the Forum will be dedicated to Bali
Ministerial Conference issues, such as
trade facilitation, development issues,
topics related to small and medium-
sized enterprises, e-commerce, food
security, and future challenges .
. Food Security and Issues-
Proposed by G33 nations (India, China and
Philippines in particular. These countries have many
food security schemes for the poor in place)
Stock holding & Food Aid- an important measure for
developing countries to assure minimum returns to
their poor farmers and domestic food security. It is
far more crucial for highly populated countries having
significant area under rainfed conditions.
Expected position of India in Bali - India is likely
to convey that the Peace Clause in Article 13 of
the agreement on agriculture (AOA) that is vogue
since 9 years. India can only go so far as
accepting a Peace Clause as an interim
mechanism till an acceptable final solution is
India is even prepared to commit non-releasing of
procured food grains for international trade and
the management of public stocks to be done in a
Cotton-4 – Benin, Burkina Faso, Chad, Mali have
proposed to allow cotton from least developed
countries duty-free, quota-free market access into
developed countries and at least some developing
countries by 2015, to eliminate any remaining
export subsidies for cotton in developed countries
immediately. They are also asking for a decision by
the end of 2014 on how to cut domestic support for
LDC specific issues:
Duty and quota free market access
Operationalisation of waiver on services
Cotton and preferential rules of origin.
Enhanced Integrated Framework
A non-negotiating subject matter, but of
critical importance to the LDCs in the
context of their trade capacity-building
is the EIF programme which aims to
build institutional and productive
capacity in the LDCs.
The EIF is also an instrument for the
LDCs to access larger aid-for-trade
resources. In fact, the LDCs could very
well use the occasion of the Bali
Ministerial to further reinforce the aid-
for-trade initiative in the WTO.
Let Us Play Intelligently and Get in our Favour
Ye Dharati Apani Hai Apana Ambar Hai Re