UPH MTIC Program | Introduction to WTO Law

Features and Functions of the World Trade Organization

Simon Lacey

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What is the WTO – or what is it NOT ?

Common Misconceptions

• The WTO is not part of the United Nations.

• The WTO is not an organization staffed by men in dark suits, wearing reflective sunglasses and flying around at night in black helicopters.

• Nor is the WTO part of some international conspiracy to take over the world.

• It is also not an organization that advocates the interests of multinational corporations to the detriment of poorer developing countries.

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The World Trade Organization

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The WTO as an International Organization

The WTO was established on 1 January 1995 (thus a young organization). It comprises 153 Members, with countries as diverse (politically and

economically) as Israel, Saudi Arabia, Cuba and the USA, and includes developed, developing and least developed countries (developing countries in the majority).

It has approximately 30 countries currently in the queue to join, representing such differing political and economic systems as Uzbekistan, the Bahamas, Belarus and Bosnia Herzegovina.

It has a “small” secretariat located on the shores of Lake Geneva. It decides by consensus.

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The WTO as a Body of Rules

The WTO, as an organization, administers a body of rules known as the “Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations” but which most people just call the “WTO Agreement and its related Annexes” (about 500 pages of treaty texts).

These rules are first and foremost concerned with how governments regulate trade between each other (trade in goods and trade in services).

They are only concerned with other issues like food safety, protection of the environment, intellectual property rights, investment, government procurement etc. to the extent that these issues affect trade between WTO Members.

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Main Principles Embodied in WTO Rules

Non Discrimination– This is achieved by means of the MFN and National Treatment obligations, which apply

throughout all the agreements in different forms (GATT, GATS, TRIPS etc.) Transparency

– Any laws, regulations or measure which affect trade must be published BEFORE they enter into effect, and if possible, be preceded by a process of consultation (notification obligations).

Predictability– Traders need to know the terms and conditions subject to which they will be operating, WTO

Members cannot, say, increase tariffs above bindings or re-introduce quantitative restrictions. Consensus decision-making

– All WTO bodies operate on the basis of consensus. However, consensus does not mean unanimity, and in the WTO context merely means that no Member present when a decision is taken, explicitly objects to it.

Single Undertaking– With the exception of a very limited number of plurilateral agreements, the Uruguay Round legal

texts must be accepted by WTO Members as a whole, (no opt-out, or choosing which agreements to be bound by “à la carte”)

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The WTO as a Balance of Rights and Obligations

Each WTO Member has a Schedule of Tariff Concessions which set out the maximum tariff levels (called “bindings”) it shall levy on goods from other WTO Members.

For services trade, each WTO Member has a Schedule of Specific Commitments which sets out the terms and conditions subject to which foreign service providers will be allowed to enter and operate on the Member’s domestic services market.

Together with the rules contained in the WTO Agreement and its related Annexes, the Schedule of Tariff Concessions (for goods) and the Schedule of Specific Commitments (for services), these make up the package of rights and obligations which WTO Members enjoy and are bound by.

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The Concept of the Single Undertaking

The use of the term Single Undertaking first came into common parlance during the Uruguay Round

It was used to sum up the notion that the Round would not be concluded, until consensus had been achieved in all the various negotiating groups

Today, given that the Uruguay Round is over, we still talk of the Single Undertaking with regard to the notion that all the Results of the Uruguay Round are binding on all WTO Members. Apart from the plurilateral agreements, Members cannot pick and choose which agreements they wish to be bound by and which not

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Exceptions to the Single Undertaking

In terms of the Single Undertaking as a negotiating imperative, we talk today of an “early harvest” in the Doha negotiations, whereby some of the commitments on which consensus may be achieved early on, could be adopted by the WTO Membership and become operationalized before the Round as a whole has been concluded.

Paragraph 47 of the Doha Ministerial Declaration makes an explicit reference to this possibility with regard to dispute settlement.

Otherwise, the large degree of flexibility built into some agreements, particularly the GATS, make it almost pointless to talk of a Single Undertaking with regard to, say, market opening and other specific commitments in services trade.

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Purpose and Functions of the WTO

The main objective of the Organization is the establishment of rules for Members’ trade policy regimes which help international trade to expand with a view to raising living standards.

These rules aim to promote non-discrimination, transparency and predictability in the conduct of trade policy (we will look into these concepts slightly later in this presentation).

The WTO pursues this objective by– Administering trade agreements– Acting as a forum for trade negotiations– Settling trade disputes– Reviewing national trade policies– Assisting developing countries in trade policy issues through technical

assistance– Cooperating with other international organizations.

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Organizational Chart of the WTO

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WTO Members 2013

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The WTO Secretariat

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The WTO Secretariat: Staff 2013

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The WTO Secretariat: Budget 2013

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Brings a badly needed breath of fresh air to the Director Generalship.

Should be able to play a decisive role in steering big emerging market Members towards playing a more constructive role.

Also has the tough role of finding a face-saving conclusion to the Doha Round and then re-orientating the Organization to meet the needs of an evolving trading system.

The New Director General

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The WTO as a System of Agreements

The WTO Agreements have a fairly unique treaty structure, which is due to the fact that they are simply the embodiment of a long and arduous round of trade negotiations which lasted from 1986 to 1993.

The main document is one entitled “The Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations”

Annexed to the Final Act are all the legal texts and other documents which make up the entirety of the WTO nomenclature, namely: The Agreement Establishing the World Trade Organization (The WTO Agreement), the Ministerial Declarations and Decisions and the Understanding on Commitments in Financial Services.

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The WTO Agreements

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The Marrakesh Agreement Establishing the WTO

Otherwise known as the “WTO Agreement”

Essentially an institutional charter for the Organization

Governs such issues as functions of the WTO, structure, relations with other organization, budget and contributions, decision-making procedures, accession, withdrawal et al.

Short agreement comprising some 26 articles

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The Annex 1A Agreements –Trade in Goods

These agreements cover trade in goods, they are:

GATT 1994 Agreement on Agriculture SPS Agreement Agreement on Textiles and Clothing (no longer in force) TBT Agreement TRIMS Agreement Anti-dumping Agreement Customs Valuation Agreement Preshipment Inspection Rules of Origin Import Licensing Procedures Subsidies and Countervailing Measures Safeguards

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Annex 1B – Trade in Services

The General Agreement on Trade and Services and its Annexes:– Annex on Article II Exemptions– Annex on Movement of Natural Persons Supplying Services under the Agreement– Annex on Air Transport Services– Annex on Financial Services– Second Annex on Financial Services– Annex on Negotiations on Maritime Transport Services– Annex on Telecommunications– Annex on Negotiations on Basic Telecommunications

The Schedules of Specific Commitments also form an integral part of Annex 1B

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Annex 1C –Intellectual Property

Annex 1C to the WTO Agreement comprises the Agreement on Trade-Related Aspects of Intellectual Property Rights.

The TRIPS Agreement was one of the new areas which became subject to multilateral trade rules as a result of the Uruguay Round (together with services).

Many of its substantive obligations were already codified at the international level in other treaties, but the main innovation provided by the TRIPS Agreement was to henceforth make these obligations subject to formal dispute settlement (see next slide).

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Annex 2 – Dispute Settlement

Annex 2 to the WTO Agreement comprises the Understanding on Rules and Procedures Governing the Settlement of Disputes

This is an important document for dealing with trade disputes and one of the most important innovations of the Uruguay Round

We shall discuss the DSU and its application in later sessions (with Peter van den Bossche)

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Annex 3 –Trade Policy Review

Annex 3 sets out provisions governing the Trade Policy Review Mechanism.

The trade policy review had already existed prior to the entry into force of the WTO, and had been operational since the 1980s.

But the Uruguay Round codified the procedure more formally and brought it under the treaty structure of the WTO.

It also established the Trade Policy Review Body as part of the WTO’s institutional structure

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Annex 4 - Plurilaterals

Annex 4 to the WTO Agreement contains the so-called Plurilateral Trade Agreements, namely

Agreement on Trade in Civil Aircraft Agreement on Government Procurement International Dairy Agreement (expired) International Bovine Meat Agreement (expired)

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Ministerial Decisions and Declarations

These are a series (27) of decisions and declarations also annexed to the WTO Agreement, concerning various issues, such as:

Decision on Measures in Favour of Least-Developed Countries

Decision on Notification Procedures

Declaration on the Relationship of the WTO with the IMF

and various other decisions and declarations

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Understanding on Commitments in Financial Services

This Understanding, explicitly mentioned in the Uruguay Round Final Act

The Understanding was necessary in order to allow the so-called “overtime” negotiations on financial services which certain Members (particularly the US) insisted on before allowing the Round to be concluded.

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GATT 1947 and GATT 1994

Although superseded by GATT 1994, the legal text of GATT 1947 is still of the greatest relevance today, and as such GATT 1947 has been appended to the Uruguay Round Final Act.

The GATT 1994 comprises the provisions of the GATT 1947 as well as a number of legal instruments which entered into force under GATT 1947 before the date of entry into force of the WTO Agreement.

The GATT 1994 also comprises a number of Understandings which are enumerated and subsequently set out at the start of Annex 1A (in goods).

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The Work of the WTO – Expanding Membership

The WTO aspires to be a universal organization, meaning that any State or separate customs territory may apply to join.

The WTO is somewhat like a club, to which applicants must negotiate their entry fee.

At present, some 30 such applications are at various stages of being negotiated. WTO accession negotiations are generally fairly long and drawn-out affairs, and

can take anything from 2 to 15 years. Working Parties are set up to manage the negotiation process for each applicant

individually, and it is the WTO General Council that ultimately adopts the protocol of accession once these negotiations are complete.

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The WTO Accession Process in a Nutshell

Accession to the WTO is by agreement with current members. A candidate country must make ‘offersoffers’ to these members which are then

accepted. These offers concern:

– tariff levelstariff levels (market access for foreign goods)– servicesservices (access to one’s own market for foreign service suppliers)– agricultureagriculture (market access and use of subsidies).

But the process also involves making often far-reaching legislative changes, the purpose of which is to ensure that the market access opportunities given by means of these offers, is not subsequently undermined by other, contradictory policies.

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WTO Accession Which Members are Most Active?

Each Working Party is different and attracts the interest of different Members Not every Member has resources in Geneva or the capital to dedicate to

accessions and some wont have a trade interest which is significant enough for them to “weigh in”

However a core group of Members are represented on every accession working party: Australia, Canada, the European Communities and its Member States, India, Japan, New Zealand, Switzerland, and the United States

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WTO Accession: The Different Issues Involved

Market access interests – Real and present Market access interest– Potential or theoretical market access interest

Systemic interests– Compliance with current rules– Compliance with future rules

Other Geopolitical or strategic interests– Going after geopolitical objectives– Settling old scores

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WTO Accession and Market Access Interests

The importance of market access as a driving force for Members It will, most probably, be a market access issue which underlies any decision for a

non-core group Members to join a given accession working party

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WTO Accession: Real and Effective Market Access Interests

Definition: a good or service which a WTO Member currently exports into the market of the applicant

Members’ objectives here are clear: Improve current market access terms or lock in current market access conditions

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WTO Accession: Real Market Access Issues for Trade in Goods

Negotiate a tariff binding at or below the applied level which the product currently enjoys;

Commitment not to set up more restrictive trade barriers where none have existed before (TRQs, import licensing procedures);

Use of antidumping duties by the applicant (case of Belarus and Lithuania, or Ukraine and Kyrgyz Republic);

Opposite case of antidumping duties in place by a Members and negotiating a kind of “peace clause: for them (case of Mexico and China).

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WTO Accession: Potential or Theoretical Market Access Interests

Definition: market access requests of an applicant involving a product where there is little or even no trade currently taking place.

As a rule, involve products which are of general export interest to a given Member such as of cheese, or luxury watches (Swiss) Tequila (Mexicans)

Member in question will have this request as part of a standard formula or template

The importance of this concession to the Member in question can be seen more in terms of domestic politics

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WTO Accession: Systemic Issues

A number of broader and more far-reaching concerns also see Members take a tough and committed stance

Two Distinct Categories of Systemic Interests: – Applying Today’s Rules Now – Creating Conditions on the Ground for Tomorrow

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WTO Accession: Systemic Issues: Applying Today’s Rules Now

Example: Immediate and Full Implementation of the TBT and SPS Agreements Issue important for Members who want to protect their market access interests

from nullification or impairment by WTO-illegal TBT or SPS measures The best strategy for applicants is to identify what are the most significant products

for Members and bring standards into compliance for these products And then there is always the legislative action plan Members generally hostile to any requests for implementation period, given the

lengthy period of time accessions usually take anyway

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WTO Accession: Systemic Issues = Creating Conditions on the Ground for Tomorrow

Members can see a given accession as a chance to ask the applicant to accede with rules in place which the multilateral system may be moving towards

Example The GPA– Essentially only 15 Signatories (counting the EU as one)– Only limited success in broadening membership since the UR– WTO Accession seen as a good way to “up-the-numbers”– 14 acceded Members have become observers, of which 7 are currently negotiating

accession– Also an underlying market access interest given the importance of the public

sector in many acceded Members

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WTO Accession: Other Geopolitical or Strategic Interests

A number of accessions have also seen a different set of issues leveraged within the unique dynamic represented by the WTO accession process

Essentially two types of non-trade related issues:– Pursuit of Geopolitical Objectives (example of Kyoto Protocol)

– Settling old scores (settlement of old Comecon debts)

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Ad hoc Negotiating Structure for the Doha “Round” Trade Negotiations Committee (TNC)

• reports to the General Council• chaired by the Director-General (ex-officio)

(new) Negotiating Groups (ad hoc) “Special Sessions” of existing Bodies

WTO at Work - Doha

DOHA DEVELOPMENT AGENDA - DDA

Monitoring of the negotiations and organization of work

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Implementation (§12)Agriculture (§13-14)

Services (§15)Market Access for Non-Agricultural Products (§16)

TRIPS (§17-19)Trade and Investment (§20-22)

Trade and Competition Policy (§23-25)Transparency in Government Procurement (§26)

Trade Facilitation (§27)WTO Rules (§28-29)

Dispute Settlement (§30)Trade and Environment (§31-32)

Electronic Commerce (§34)Small Economies (§35)

Trade, Debt and Finance (§36)Trade and Transfer of Technology (§37)

Technical Cooperation and Capacity Building (§38-41)Least-Developed Countries (§42-43)

Special and Differential Treatment (§44)

Doha Work Programme

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The Doha Round in Brief

Since the launch of the Round in 2001, progress has been slow and tumultuous:

September 2013 – Collapse in Cancun

July 2004 – The July Package temporarily puts the Round back on track

December 2005 - the Hong Kong Ministerial – steady progress

July 2008 – Lamy bets the farm and loses, leading to an impasse

Since 2008 – a number of Ministerial Conferences, without substantial progress on the Doha Work Program

December 2013 – Bali, seen as somewhat of a breakthrough

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Assessing the BaliPackage

Food Security Trade Facilitation Least Developed

Countries Other Issues

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Assessing Bali: Food Security

In November 2012, a group of developing countries led by India (known as the G-33) tabled an informal proposal seeking additional flexibilities in agricultural disciplines.

The main thrust of the proposal is to allow developing countries to pay domestic farmers above-market prices to grow staple crops needed for national stock-piling programs. These rules would normally run afoul of WTO subsidy disciplines on trade-distorting domestic support.

Another element of this proposal is to loosen or broaden the definition of what constitutes non trade-distorting domestic support to allow developing countries to finance a range of agricultural reform policies.

Farm lobbies in developed countries have urged their trade negotiators to fight these proposals or to encumber any such provisions with tight constraints so they don’t represent a blank check for developing country governments to bankroll their farm sectors indefinitely.

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Assessing Bali: Trade Facilitation

This is the one Singapore Issue that Members achieved an explicit consensus on in July 2004 to start negotiations on.

The negotiating mandate directs Members to “clarify and improve” a number of existing GATT disciplines including: Article V (Freedom of Transit), Article VIII (Fees and Formalities connected with

Importation and Exportation), and Article X (Publication and Administration of Trade

Regulations). Negotiations also focus on technical assistance

and capacity building

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Assessing Bali: Least Developed Countries

Original Doha mandate spoke of integration of the LDCs into the multilateral trading system requiring meaningful market access, support for the diversification of their production and export base, and trade-related technical assistance and capacity building;

At Hong Kong, language was adopted that would see WTO Members required to provide duty-free and quota-free (DFQF) market access on a lasting basis, for all products originating from all LDCs.

At Bali, the onus will be on Members to unhook this commitment from the Single Undertaking and operationalize it immediately.

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Assessing Bali: Other Issues

Expanding membership and coverage of the Information Technology Agreement

(now seems very unlikely in the face of Chinese intransigence) Ratifying the changes to the Government Procurement Agreement agreed at the

WTO Ministerial in 2011 (probably not going to happen either since not enough

Members have themselves implemented the new rules) Achieving consensus on an Agreement on Non-Preferential Rules of Origin (not

really being talked about at all for Bali but may come after) Abandoning the Single Undertaking in areas such as services (this has long been

the de-facto position of many countries and is a tendency that will only increase)

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Effective Participation in Trade Negotiations

Although the WTO boasts some 153 Members, some are more effective than others at using their Membership to further the national economic interest.

Sending a negotiating team to the WTO is much like sending a team to the Olympics or the World Cup: many teams compete, but only a handful do so effectively.

The negotiating team needs sufficient and adequate input from those affected by their negotiated outcomes, i.e. economic operators and the private sector in general.

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What are the Benefits of the WTO?

The WTO website lists 10 benefits of the WTO and the trading system it oversees. They are, it says:

The system helps promote peace. Disputes are handled constructively. Rules make life easier for all. Freer trade cuts the cost of living. It provides more choice of products and qualities. Trade raises incomes. Trade stimulates economic growth. The basic principles make life more efficient (for traders). Governments are shielded from lobbying (from domestic pressure groups). The system encourages accountable governance.

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Benefits of WTO Membership: Market Diversification

Being a WTO Member, and thus benefiting from MFN access to other WTO Members allows exporters to develop alternative export markets.

Market diversification makes sense if exports into one market are suddenly disrupted (such as by an antidumping measure etc.).

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Benefits of WTO Membership: Access to the Dispute Settlement System

Although WTO dispute settlement is always a last resort, sometimes it represents the only way to force a recalcitrant Member to restore market access.

There are many examples of developing countries taking on other developing and developed countries at the WTO and having their market access restored.

Without the WTO dispute settlement process, an aggrieved country has very little leverage over the country denying it market access. This is because the WTO also a system of remedies and sanctions in place when a WTO Member illegally restricts the market access of another Member.

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Benefits of WTO Membership: Transparency

WTO Members have to publish any regulations or measures which affect their trade regimes.

Some WTO Agreements (GATS, TBT, SPS) require them to establish enquiry points which must respond to requests for information from foreign exporters and service providers.

WTO Members enacting any measure to restrict trade (e.g. imposing a safeguard measure) have to provide advance notice before doing so.

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Benefits of WTO Membership: Binding Rules = Predictability

WTO Members who have agreed to bind tariffs at certain levels, or to do away with quantitative restrictions, cannot just disregard these commitments from one day to the next.

In light of this reality, economic operators can be confident of the minimum conditions of market access they can expect.

If WTO Members do breach these commitments, the dispute settlement system is there to police them.

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Benefits of WTO Membership: More Choice as Consumers

We are all consumers of goods and services. Being part of the WTO ultimately results in a domestic market that is more

liberalized and by definition more competitive. One of the results of this competition is greater choice and cheaper prices. Foreign banks and financial services providers are able to operate in the domestic

market. Foreign telecommunications providers and retailers are allowed to operate in the

domestic market. The result is more choice, cheaper prices, and better quality of life for everyone.

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Benefits of WTO Membership: More Attractive to FDI

WTO membership requires far-reaching legislative changes.

It results in an economic system which is more attractive to FDI, and WTO Membership will be a sign to foreign investors that an economy fulfills certain basic governance criteria.

There is evidence that FDI in China experienced a huge leap in the year immediately following its accession to the WTO, as did Vietnam

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Benefits of WTO Membership: Improved Governance

WTO membership requires far-reaching changes of a legislative and institutional nature.

It results in the discretion of the government to suddenly and arbitrarily impose new barriers to foreign (and thus also domestic) economic operators being heavily curtailed.

It also curtails the government’s ability to pander to special economic interests within the domestic economy that might be advocating protection at the cost of the rest of the economy.

In short, it acts as a code of good conduct which limits the ability of governments to enact damaging economic policies for the short-term benefits of a few.

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Challenges Currently Facing the WTO

Lack of negotiating authority in the US (will this change any time soon?) Increasing tendency towards bilateralism and regionalism amongst WTO

Members (is this bad for the system?); Increasing size of the Organization and out-dated decision making structures

(need for reform); Negative perception of the Organization since Seattle Ministerial (is this

deserved?).

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The WTO as Treaty, Institution or Something Else

So far we have looked at the WTO as an organizational structure comprising Members (Countries and Customs Territories)

We have also looked at it as a system of agreements It is also a binding body of rules, set out in the WTO

agreements and enforced within the context of the institutional structures

The WTO is also a work in progress, constantly adding new Members, and updating/amending its rules, as well as adding new agreements to its treaty structure.

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Conclusion

The benefits of the world trading system administered by the WTO are real, even if they seem somewhat intangible sometimes.

WTO membership results in more competition, which can bring short-term hardship as well as short and long-term benefits.

There is a clear need to manage expectations when it comes to trade negotiations and obtaining WTO membership.

Trade policy is just one piece of the puzzle when it comes to the overall economic reform program and must be managed sensibly.

The WTO is a institution and a system of rules created by humans and thus it is not perfect. It does not claim to work perfectly to the satisfaction of everyone. If Winston Churchill were to describe it, he would probably say that it is the worst way to manage international economic relations – except for all the other ways.

UPH MTIC Program | Introduction to WTO Law

Features and Functions of the World Trade Organization

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