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Transcript of The World Trade Organization
The World Trade Organization (WTO) is an organization that intends to supervise and
liberalize international trade. The organization officially commenced on 1 January 1995
under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade
(GATT), which commenced in 1948.The organization deals with regulation of trade
between participating countries; it provides a framework for negotiating and formalizing
trade agreements, and a dispute resolution process aimed at enforcing participant's
adherence to WTO agreements, which are signed by representatives of member
governments and ratified by their parliaments. Most of the issues that the WTO focuses
on derive from previous trade negotiations, especially from the Uruguay Round (1986–
1994).
The organization is attempting to complete negotiations on the Doha Development
Round, which was launched in 2001 with an explicit focus on addressing the needs of
developing countries. As of June 2012, the future of the Doha Round remained uncertain:
the work programme lists 21 subjects in which the original deadline of 1 January 2005
was missed, and the round is still incomplete.The conflict between free trade on industrial
goods and services but retention of protectionism on farm subsidies to domestic
agricultural sector (requested by developed countries) and the substantiation of the
international liberalization of fair trade on agricultural products (requested by developing
countries) remain the major obstacles. These points of contention have hindered any
progress to launch new WTO negotiations beyond the Doha Development Round. As a
result of this impasse, there has been an increasing number of bilateral free trade
agreements signed.As of July 2012, there were various negotiation groups in the WTO
system for the current agricultural trade negotiation which is in the condition of
stalemate.
WTO's current Director-General is Roberto Azevêdo, who leads a staff of over 600
people in Geneva, Switzerland.
History
The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was
established after World War II in the wake of other new multilateral institutions
dedicated to international economic cooperation – notably the Bretton Woods institutions
known as the World Bank and the International Monetary Fund. A comparable
international institution for trade, named the International Trade Organization was
successfully negotiated. The ITO was to be a United Nations specialized agency and
would address not only trade barriers but other issues indirectly related to trade, including
employment, investment, restrictive business practices, and commodity agreements. But
the ITO treaty was not approved by the U.S. and a few other signatories and never went
into effect.
In the absence of an international organization for trade, the GATT would over the years
"transform itself" into a de facto international organization.
GATT rounds of negotiations
The GATT was the only multilateral instrument governing international trade from 1946
until the WTO was established on 1 January 1995. Despite attempts in the mid-1950s and
1960s to create some form of institutional mechanism for international trade, the GATT
continued to operate for almost half a century as a semi-institutionalized multilateral
treaty regime on a provisional basis.
From Geneva to Tokyo
Seven rounds of negotiations occurred under GATT. The first real GATT trade rounds
concentrated on further reducing tariffs. Then, the Kennedy Round in the mid-sixties
brought about a GATT anti-dumping Agreement and a section on development. The
Tokyo Round during the seventies was the first major attempt to tackle trade barriers that
do not take the form of tariffs, and to improve the system, adopting a series of agreements
on non-tariff barriers, which in some cases interpreted existing GATT rules, and in others
broke entirely new ground. Because these plurilateral agreements were not accepted by
the full GATT membership, they were often informally called "codes". Several of these
codes were amended in the Uruguay Round, and turned into multilateral commitments
accepted by all WTO members. Only four remained plurilateral (those on government
procurement, bovine meat, civil aircraft and dairy products), but in 1997 WTO members
agreed to terminate the bovine meat and dairy agreements, leaving only two.
Uruguay Round
Well before GATT's 40th anniversary, its members concluded that the GATT system was
straining to adapt to a new globalizing world economy. In response to the problems
identified in the 1982 Ministerial Declaration (structural deficiencies, spill-over impacts
of certain countries' policies on world trade GATT could not manage etc.), the eighth
GATT round – known as the Uruguay Round – was launched in September 1986, in
Punta del Este, Uruguay.
It was the biggest negotiating mandate on trade ever agreed: the talks were going to
extend the trading system into several new areas, notably trade in services and intellectual
property, and to reform trade in the sensitive sectors of agriculture and textiles; all the
original GATT articles were up for review. The Final Act concluding the Uruguay Round
and officially establishing the WTO regime was signed 15 April 1994, during the
ministerial meeting at Marrakesh, Morocco, and hence is known as the Marrakesh
Agreement.
The GATT still exists as the WTO's umbrella treaty for trade in goods, updated as a result
of the Uruguay Round negotiations (a distinction is made between GATT 1994, the
updated parts of GATT, and GATT 1947, the original agreement which is still the heart
of GATT 1994). GATT 1994 is not however the only legally binding agreement included
via the Final Act at Marrakesh; a long list of about 60 agreements, annexes, decisions and
understandings was adopted. The agreements fall into a structure with six main parts:
• The Agreement Establishing the WTO
• Goods and investment – the Multilateral Agreements on Trade in Goods including the
GATT 1994 and the Trade Related Investment Measures (TRIMS)
• Services — the General Agreement on Trade in Services
• Intellectual property – the Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS)
• Dispute settlement (DSU)
• Reviews of governments' trade policies (TPRM)[26]
In terms of the WTO's principle relating to tariff "ceiling-binding" (No. 3), the Uruguay
Round has been successful in increasing binding commitments by both developed and
developing countries, as may be seen in the percentages of tariffs bound before and after
the 1986–1994 talks.
Ministerial conferences
The highest decision-making body of the WTO is the Ministerial Conference, which
usually meets every two years. It brings together all members of the WTO, all of which
are countries or customs unions. The Ministerial Conference can take decisions on all
matters under any of the multilateral trade agreements. The inaugural ministerial
conference was held in Singapore in 1996. Disagreements between largely developed and
developing economies emerged during this conference over four issues initiated by this
conference, which led to them being collectively referred to as the "Singapore issues".
The second ministerial conference was held in Geneva in Switzerland. The third
conference in Seattle, Washington ended in failure, with massive demonstrations and
police and National Guard crowd-control efforts drawing worldwide attention. The fourth
ministerial conference was held in Doha in the Persian Gulf nation of Qatar. The Doha
Development Round was launched at the conference. The conference also approved the
joining of China, which became the 143rd member to join. The fifth ministerial
conference was held in Cancún, Mexico, aiming at forging agreement on the Doha round.
An alliance of 22 southern states, the G20 developing nations (led by India, China,
Brazil, ASEAN led by the Philippines), resisted demands from the North for agreements
on the so-called "Singapore issues" and called for an end to agricultural subsidies within
the EU and the US. The talks broke down without progress.
The sixth WTO ministerial conference was held in Hong Kong from 13–18 December
2005. It was considered vital if the four-year-old Doha Development Round negotiations
were to move forward sufficiently to conclude the round in 2006. In this meeting,
countries agreed to phase out all their agricultural export subsidies by the end of 2013,
and terminate any cotton export subsidies by the end of 2006. Further concessions to
developing countries included an agreement to introduce duty free, tariff free access for
goods from the Least Developed Countries, following the Everything but Arms initiative
of the European Union — but with up to 3% of tariff lines exempted. Other major issues
were left for further negotiation to be completed by the end of 2010. The WTO General
Council, on 26 May 2009, agreed to hold a seventh WTO ministerial conference session
in Geneva from 30 November-3 December 2009. A statement by chairman Amb. Mario
Matus acknowledged that the prime purpose was to remedy a breach of protocol
requiring two-yearly "regular" meetings, which had lapsed with the Doha Round failure
in 2005, and that the "scaled-down" meeting would not be a negotiating session, but
"emphasis will be on transparency and open discussion rather than on small group
processes and informal negotiating structures". The general theme for discussion was
"The WTO, the Multilateral Trading System and the Current Global Economic
Environment"
Doha Round (Doha Agenda)
The WTO launched the current round of negotiations, the Doha Development Round, at
the fourth ministerial conference in Doha, Qatar in November 2001. This was to be an
ambitious effort to make globalization more inclusive and help the world's poor,
particularly by slashing barriers and subsidies in farming. The initial agenda comprised
both further trade liberalization and new rule-making, underpinned by commitments to
strengthen substantial assistance to developing countries.
The negotiations have been highly contentious. Disagreements still continue over several
key areas including agriculture subsidies, which emerged as critical in July 2006.
According to a European Union statement, "The 2008 Ministerial meeting broke down
over a disagreement between exporters of agricultural bulk commodities and countries
with large numbers of subsistence farmers on the precise terms of a 'special safeguard
measure' to protect farmers from surges in imports." The position of the European
Commission is that "The successful conclusion of the Doha negotiations would confirm
the central role of multilateral liberalisation and rule-making. It would confirm the WTO
as a powerful shield against protectionist backsliding." An impasse remains and, as of
August 2013, agreement has not been reached, despite intense negotiations at several
ministerial conferences and at other sessions. On 27 March 2013, the chairman of
agriculture talks announced "a proposal to loosen price support disciplines for developing
countries’ public stocks and domestic food aid." He added: “...we are not yet close to
agreement—in fact, the substantive discussion of the proposal is only beginning.”
GATT and WTO trade rounds
Functions
Among the various functions of the WTO, these are regarded by analysts as the most
important:
• It oversees the implementation, administration and operation of the covered
agreements.
• It provides a forum for negotiations and for settling disputes.
Additionally, it is the WTO's duty to review and propagate the national trade policies,
and to ensure the coherence and transparency of trade policies through surveillance in
global economic policy-making. Another priority of the WTO is the assistance of
developing, least-developed and low-income countries in transition to adjust to WTO
rules and disciplines through technical cooperation and training.
The WTO is also a center of economic research and analysis: regular assessments of the
global trade picture in its annual publications and research reports on specific topics are
produced by the organization. Finally, the WTO cooperates closely with the two other
components of the Bretton Woods system, the IMF and the World Bank.
Principles of the trading system
The WTO establishes a framework for trade policies; it does not define or specify
outcomes. That is, it is concerned with setting the rules of the trade policy games.Five
principles are of particular importance in understanding both the pre-1994 GATT and the
WTO:
1. Non-discrimination. It has two major components: the most favoured nation (MFN)
rule, and the national treatment policy. Both are embedded in the main WTO rules
on goods, services, and intellectual property, but their precise scope and nature
differ across these areas. The MFN rule requires that a WTO member must apply
the same conditions on all trade with other WTO members, i.e. a WTO member
has to grant the most favorable conditions under which it allows trade in a certain
product type to all other WTO members. "Grant someone a special favour and
you have to do the same for all other WTO members." National treatment means
that imported goods should be treated no less favorably than domestically
produced goods (at least after the foreign goods have entered the market) and was
introduced to tackle non-tariff barriers to trade (e.g. technical standards, security
standards et al. discriminating against imported goods).
2. Reciprocity. It reflects both a desire to limit the scope of free-riding that may arise
because of the MFN rule, and a desire to obtain better access to foreign markets.
A related point is that for a nation to negotiate, it is necessary that the gain from
doing so be greater than the gain available from unilateral liberalization;
reciprocal concessions intend to ensure that such gains will materialise.
3. Binding and enforceable commitments. The tariff commitments made by WTO
members in a multilateral trade negotiation and on accession are enumerated in a
schedule (list) of concessions. These schedules establish "ceiling bindings": a
country can change its bindings, but only after negotiating with its trading
partners, which could mean compensating them for loss of trade. If satisfaction is
not obtained, the complaining country may invoke the WTO dispute settlement
procedures.
4. Transparency. The WTO members are required to publish their trade regulations, to
maintain institutions allowing for the review of administrative decisions affecting
trade, to respond to requests for information by other members, and to notify
changes in trade policies to the WTO. These internal transparency requirements
are supplemented and facilitated by periodic country-specific reports (trade policy
reviews) through the Trade Policy Review Mechanism (TPRM). The WTO
system tries also to improve predictability and stability, discouraging the use of
quotas and other measures used to set limits on quantities of imports.
5. Safety valves. In specific circumstances, governments are able to restrict trade. The
WTO's agreements permit members to take measures to protect not only the
environment but also public health, animal health and plant health.
There are three types of provision in this direction:
• articles allowing for the use of trade measures to attain non-economic objectives;
• articles aimed at ensuring "fair competition"; members must not use environmental
protection measures as a means of disguising protectionist policies.
• provisions permitting intervention in trade for economic reasons.
Exceptions to the MFN principle also allow for preferential treatment of developing
countries, regional free trade areas and customs unions.
Organizational structure
The General Council has the following subsidiary bodies which oversee committees in
different areas:
Council for Trade in Goods
There are 11 committees under the jurisdiction of the Goods Council each with a specific
task. All members of the WTO participate in the committees. The Textiles Monitoring
Body is separate from the other committees but still under the jurisdiction of Goods
Council. The body has its own chairman and only 10 members. The body also has several
groups relating to textiles.
Council for Trade-Related Aspects of Intellectual Property Rights
Information on intellectual property in the WTO, news and official records of the
activities of the TRIPS Council, and details of the WTO's work with other international
organizations in the field.
Council for Trade in Services
The Council for Trade in Services operates under the guidance of the General Council
and is responsible for overseeing the functioning of the General Agreement on Trade in
Services (GATS). It is open to all WTO members, and can create subsidiary bodies as
required.
Trade Negotiations Committee
The Trade Negotiations Committee (TNC) is the committee that deals with the current
trade talks round. The chair is WTO's director-general. As of June 2012 the committee
was tasked with the Doha Development Round.
The Service Council has three subsidiary bodies: financial services, domestic regulations,
GATS rules and specific commitments. The General council has several different
committees, working groups, and working parties. There are committees on the
following: Trade and Environment; Trade and Development (Subcommittee on Least-
Developed Countries); Regional Trade Agreements; Balance of Payments Restrictions;
and Budget, Finance and Administration. There are working parties on the following:
Accession. There are working groups on the following: Trade, debt and finance; and
Trade and technology transfer.
Decision-making
The WTO describes itself as "a rules-based, member-driven organization — all decisions
are made by the member governments, and the rules are the outcome of negotiations
among members". The WTO Agreement foresees votes where consensus cannot be
reached, but the practice of consensus dominates the process of decision-making.
Richard Harold Steinberg (2002) argues that although the WTO's consensus governance
model provides law-based initial bargaining, trading rounds close through power-based
bargaining favouring Europe and the U.S., and may not lead to Pareto improvement.
Dispute settlement
Main article: Dispute settlement in the WTO
In 1994, the WTO members agreed on the Understanding on Rules and Procedures
Governing the Settlement of Disputes (DSU) annexed to the "Final Act" signed in
Marrakesh in 1994. Dispute settlement is regarded by the WTO as the central pillar of the
multilateral trading system, and as a "unique contribution to the stability of the global
economy". WTO members have agreed that, if they believe fellow-members are violating
trade rules, they will use the multilateral system of settling disputes instead of taking
action unilaterally.
The operation of the WTO dispute settlement process involves the DSB panels, the
Appellate Body, the WTO Secretariat, arbitrators, independent experts and several
specialized institutions. Bodies involved in the dispute settlement process, World Trade
Organization.
Accession and membership
Main article: World Trade Organization accession and membership
The process of becoming a WTO member is unique to each applicant country, and the
terms of accession are dependent upon the country's stage of economic development and
current trade regime. The process takes about five years, on average, but it can last more
if the country is less than fully committed to the process or if political issues interfere.
The shortest accession negotiation was that of the Kyrgyz Republic, while the longest
was that of Russia, which, having first applied to join GATT in 1993, was approved for
membership in December 2011 and became a WTO member on 22 August 2012. The
second longest was that of Vanuatu, whose Working Party on the Accession of Vanuatu
was established on 11 July 1995. After a final meeting of the Working Party in October
2001, Vanuatu requested more time to consider its accession terms. In 2008, it indicated
its interest to resume and conclude its WTO accession. The Working Party on the
Accession of Vanuatu was reconvened informally on 4 April 2011 to discuss Vanuatu's
future WTO membership. The re-convened Working Party completed its mandate on 2
May 2011. The General Council formally approved the Accession Package of Vanuatu
on 26 October 2011. On 24 August 2012, the WTO welcomed Vanuatu as its 157th
member. An offer of accession is only given once consensus is reached among interested
parties.
Accession process
A country wishing to accede to the WTO submits an application to the General Council,
and has to describe all aspects of its trade and economic policies that have a bearing on
WTO agreements. The application is submitted to the WTO in a memorandum which is
examined by a working party open to all interested WTO Members.
After all necessary background information has been acquired, the working party focuses
on issues of discrepancy between the WTO rules and the applicant's international and
domestic trade policies and laws. The working party determines the terms and conditions
of entry into the WTO for the applicant nation, and may consider transitional periods to
allow countries some leeway in complying with the WTO rules.
The final phase of accession involves bilateral negotiations between the applicant nation
and other working party members regarding the concessions and commitments on tariff
levels and market access for goods and services. The new member's commitments are to
apply equally to all WTO members under normal non-discrimination rules, even though
they are negotiated bilaterally.
When the bilateral talks conclude, the working party sends to the general council or
ministerial conference an accession package, which includes a summary of all the
working party meetings, the Protocol of Accession (a draft membership treaty), and lists
("schedules") of the member-to-be's commitments. Once the general council or
ministerial conference approves of the terms of accession, the applicant's parliament must
ratify the Protocol of Accession before it can become a member.
Members and observers
The WTO has 159 members and 25 observer governments. In addition to states, the
European Union is a member. WTO members do not have to be full sovereign nation-
members. Instead, they must be a customs territory with full autonomy in the conduct of
their external commercial relations. Thus Hong Kong has been a member since 1995 (as
"Hong Kong, China" since 1997) predating the People's Republic of China, which joined
in 2001 after 15 years of negotiations. The Republic of China (Taiwan) acceded to the
WTO in 2002 as "Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu"
(Chinese Taipei) despite its disputed status. The WTO Secretariat omits the official titles
(such as Counselor, First Secretary, Second Secretary and Third Secretary) of the
members of Chinese Taipei's Permanent Mission to the WTO, except for the titles of the
Permanent Representative and the Deputy Permanent Representative.
Iran is the biggest economy outside the WTO. With the exception of the Holy See,
observers must start accession negotiations within five years of becoming observers. A
number of international intergovernmental organizations have also been granted observer
status to WTO bodies. 14 states and two territories so far have no official interaction with
the WTO.
Agreements
The WTO oversees about 60 different agreements which have the status of international
legal texts. Member countries must sign and ratify all WTO agreements on accession.A
discussion of some of the most important agreements follows. The Agreement on
Agriculture came into effect with the establishment of the WTO at the beginning of 1995.
The AoA has three central concepts, or "pillars": domestic support, market access and
export subsidies. The General Agreement on Trade in Services was created to extend the
multilateral trading system to service sector, in the same way as the General Agreement
on Tariffs and Trade (GATT) provided such a system for merchandise trade. The
agreement entered into force in January 1995. The Agreement on Trade-Related Aspects
of Intellectual Property Rights sets down minimum standards for many forms of
intellectual property (IP) regulation. It was negotiated at the end of the Uruguay Round of
the General Agreement on Tariffs and Trade (GATT) in 1994.
The Agreement on the Application of Sanitary and Phytosanitary Measures—also known
as the SPS Agreement—was negotiated during the Uruguay Round of GATT, and
entered into force with the establishment of the WTO at the beginning of 1995. Under the
SPS agreement, the WTO sets constraints on members' policies relating to food safety
(bacterial contaminants, pesticides, inspection and labelling) as well as animal and plant
health (imported pests and diseases). The Agreement on Technical Barriers to Trade is an
international treaty of the World Trade Organization. It was negotiated during the
Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force
with the establishment of the WTO at the end of 1994. The object ensures that technical
negotiations and standards, as well as testing and certification procedures, do not create
unnecessary obstacles to trade". The Agreement on Customs Valuation, formally known
as the Agreement on Implementation of Article VII of GATT, prescribes methods of
customs valuation that Members are to follow. Chiefly, it adopts the "transaction value"
approach.
Office of director-general
The procedures for the appointment of the WTO director-general were published in
January 2003. Additionally, there are four deputy directors-general. As of September
2013, these were: Alejandro Jara, Valentine Sendanyoye Rugwabiza, Harsha Vardhana
Singh and Rufus H. Yerxa. They are scheduled to be replaced on 1 October 2013 by Yi
Xiaozhun of China, Karl-Ernst Brauner of Germany, Yonov Frederick Agah of Nigeria
and David Shark of the United States.
List of directors-general
• Roberto Azevêdo, 2013–
• Pascal Lamy, 2005–2013
• Supachai Panitchpakdi, 2002–2005
• Mike Moore, 1999–2002
• Renato Ruggiero, 1995–1999
• Peter Sutherland, 1995
(Heads of the precursor organization, GATT):
• Peter Sutherland, 1993–1995
• Arthur Dunkel, 1980–1993
• Olivier Long, 1968–1980
• Eric Wyndham White, 1948–1968
The institution
8. The World Trade Organization (WTO) is a relatively new international organization.
However, it is responsible for a system that is over 50 years old. Established on1 January
1995, the WTO replaced the General Agreement on Tariffs and Trade (GATT), which
dated back to 1948. This was a consequence of a decision taken by governments after
seven and a half years of negotiations (the "Uruguay Round"), which ended in 1994.
With the WTO's creation, the rules were expanded to new areas. While the GATT dealt
with trade in goods only, the WTO covers trade in services and intellectual property as
well. There are also some areas, such as textiles, agriculture and sanitary and
phytosanitary measures, where the WTO goes beyond the GATT by having established
specific trade rules. Under the WTO, the procedure for settling trade disputes has also
been strengthened.
9. The WTO is not a big institution. Like the WHO, it is based in Geneva but unlike the
WHO it has no regional offices. It has a total staff of about 560 headed by a Director-
General, and a limited budget.1
Structure
10. The WTO's top decision-making body is the Ministerial Conference which meets at
least once every two years (see Chart 1). The General Council, which is normally
attended by ambassadors and other Geneva-based delegates, or capital-based officials
(who may include health experts), meets several times a year in the Geneva headquarters.
The General Council also meets as the Trade Policy Review Body and the Dispute
Settlement Body (DSB). Delegates at the day-to-day meetings of the WTO are
government representatives of all WTO Members and representatives of observer
organizations. Both during negotiations and in the WTO committee work, decisions are
made by consensus. Voting is possible but it has never been used in the WTO.
(iii) Objective
11. The objective of the WTO is illustrated by the preamble to the Agreement
Establishing the World Trade Organization (the WTO Agreement), signed in Marrakesh
in April 1994:
"Recognizing that their relations in the field of trade and economic endeavor should be
conducted with a view to raising standards of living, ensuring full employment and a
large and steadily growing volume of real income and effective demand, and expanding
the production of and trade in goods and services, while allowing for the optimal use of
the world's resources in accordance with the objective of sustainable development,
seeking both to protect and preserve the environment and to enhance the means for doing
so in a manner consistent with their respective needs and concerns at different levels of
economic development, ..." [emphasis added]
(iv) Basic function
12. One of the key functions of the WTO is to serve as a forum for trade negotiations.
The last round of multilateral trade negotiations was the Uruguay Round (1986-94). The
WTO facilitates the implementation, administration and operation of the various covered
agreements; however, the power of initiative in the context of the Organization rests not
with the Secretariat but with Member governments whose representatives constitute and
preside over the many councils and committees dealing with issues that arise in
connection with the agreements.
13. The WTO is not a funding organization; it has no mandate to finance development
projects. Nevertheless, the WTO does provide technical assistance to developing
countries. The aim of this assistance is both to assist Members in the implementation of
WTO agreements and to train officials so that they understand the system and its
agreements, know how to administer them, and negotiate more effectively. Technical
assistance is also extended to acceding countries. The training is often rather "legal" and
is aimed at providing an understanding of rights and obligations Members have under the
various agreements.
Principles of the trading system
The WTO agreements are lengthy and complex because they are legal texts covering a
wide range of activities. They deal with: agriculture, textiles and clothing, banking,
telecommunications, government purchases, industrial standards and product safety, food
sanitation regulations, intellectual property and much more. But a number of simple,
fundamental principles run throughout all of these documents. These principles are the
foundation of the multilateral trading system.
A closer look at these principles:
Trade without discrimination
Most favored nation (MFN) : treating other people equally
Under the WTO agreements, countries cannot normally discriminate between their
trading partners. Grant someone a special favor (such as a lower customs duty rate for
one of their products) and you have to do the same for all other WTO members. This
principle is known as most favored nation (MFN) treatment. It is so important that it is
the first article of the General agreement on tariffs and trade (GATT), which governs
trade in goods. MFN is also a priority in the General Agreement on Trade in Services
(GATS) and the Agreement on Trade Related Aspects of Intellectual Property Rights
(TRIPS). In each agreement the principle is handled slightly differently. Together, those
three agreements
cover all three main areas of trade handled by the WTO.
Some exceptions are allowed. For example, countries can set up a free trade agreement
that applies only to goods traded within the group —discriminating against goods from
outside .or they can give developing countries special access to their markets. Or a
country can raise barriers against products that are considered to be traded unfairly from
specific countries and in services, countries are allowed in limited circumstances , to
discriminate. But the agreements only permit these exceptions under strict conditions.in
general, MFN means that every time a country lowers a trade barrier or opens up a
market, it has to do so for the same goods services from all its trading partners’/whether
rich or poor, weak or strong.
The principles
The trading system should be ...
• without discrimination — a country should not discriminate between its trading partners
(giving them equally “most-favored-nation” or MFN status); and it should not
discriminate between its own and foreign products, services or nationals (giving them
“national treatment”);
• freer — barriers coming down through negotiation;
• predictable — foreign companies, investors and governments should be confident that
trade barriers (including tariffs and non-tariff barriers) should not be raised arbitrarily;
tariff rates and market-opening commitments are “bound” in the WTO;
• more competitive — discouraging “unfair” practices such as export subsidies and
dumping products at below cost to gain market share;
• more beneficial for less developed countries — giving them more time to adjust, greater
flexibility, and special privileges.
National treatment: Treating foreigners and locals equally
Imported and locally –
Produced goods should be treated equally at least after foreign goods have entered the
market. The same should apply to foreign and domestic services, and to foreign and local
trademarks, copyrights and patents. This principle of “national treatment” (giving others
the same treatment as one’s own nationals) is also found in all
the three main WTO agreements although once again the principle is handled slightly
differently in each of these.
National treatment only applies once a product, service or item of intellectual property
has entered the market. Therefore, charging customs duty on an import is not violation of
national treatment even if locally produced products are not charged an equivalent tax.
Freer trade: gradually, through negotiation
Lowering trade barriers is one of the most obvious means of encouraging trade. The
barriers concerned include customs duties (or tariffs) and measures such as import bans
or quotas that restrict quantities selectively. From time to time other issues such as red
tape and exchange rate policies have also been discussed.
Since GATT’s creation in 1947–48 there have been eight rounds of trade negotiations.
A ninth round, under the Doha Development Agenda , is now underway. At first these
focused on lowering tariffs (customs duties) on imported goods. As a result of the
negotiations, by the mid-1990s industrial countries’ tariff rates on industrial goods had
fallen steadily to less than 4%.
But by the 1980s, the negotiations had expanded to cover non-tariff barriers on goods,
and to the new areas such as services and intellectual property.
Opening markets can be beneficial, but it also requires adjustment. The WTO agreements
allow countries to introduce changes gradually, through “progressive liberalization”.
Developing countries are usually given longer to fulfill their obligations.
Predictability: through binding and transparency
Sometimes, promising not to raise a trade barrier can be as important as lowering one,
because the promise gives businesses a clearer view of their future opportunities. With
stability and predictability, investment is encouraged ,jobs are created and consumers can
fully enjoy the benefits of competition — choice and lower prices. The multilateral
trading system is an attempt by governments to make the business environment stable
and predictable.
In the WTO, when countries agree to open their markets for goods or services. They
“bind” their commitments. For goods, these bindings amount to ceilings on customs tariff
rates. Sometimes countries tax imports at rates that are lower than the bound rates.
Frequently this is the case in developing countries.in developed countries the rates
actually charged and the bound rates tend to be the same.
A country can change its bindings, but only after negotiating with its trading partners,
which could mean compensating them for loss of trade. One of the achievements of the
Uruguay Round of multilateral trade talks was to increase the amount of trade under
binding commitments.
In agriculture,100% of products now have bound tariffs. The result of all this: a
substantially higher degree of market security for traders and investors.
The system tries to improve predictability and stability in other ways as well. One way
is to discourage the use of quotas and other measures used to set limits on quantities of
imports administering quotas can lead to more red-tape and accusations of unfair play.
Another is to make countries’ trade rules as clear and public (transparent) as possible.
Many WTO agreements require governments to disclose their policies and practices
publicly within the country or by notifying the WTO. The regular surveillance
of national trade policies through the Trade Policy Review Mechanism provides a further
means of encouraging transparency both domestically and at the multinational level.
Promoting fair competition
The WTO is something described as a “free trade” institution, but that is not entirely
accurate. The system does allow tariffs and in limited circumstances ,other forms of
protection. More accurately, it is system of rules dedicated to open, fair and undistorted
competition.
The rules on non-discrimination MFN and national treatment are designed to secure fair
conditions of trade. So too are those on dumping (exporting at below cost to gain market
share) and subsidies. The issues are complex, and the rules try to establish what fair or
unfair, and how governments can respond, in particular by charging additional import
duties calculated to compensate for damage caused by unfair trade. Many of the WTO
agreements aim to support fair competition: in agriculture, intellectual property, services,
for example. The agreement on government procurement (a “plurilateral” agreement
because it is signed by only a few WTO members) extends competition rules to purchases
by thousands of government entities in many countries. And so on.
Encouraging development and economic reform
The WTO system contributes to development. On the other hand, developing countries
need flexibility in the time they take to implement the system’s agreements. And the
agreements themselves inherit the earlier provisions of GATT that allow for special
assistance and trade concessions for developing countries.
Over three quarters of WTO members are developing countries and countries in transition
to market economies. During the seven and a half years of the Uruguay Round, over 60
of these countries implemented trade liberalization programmes autonomously.at the
same time, developing and transition economies were much more active and influential in
the Uruguay Round negotiations than in any previous round, and they are even more so in
the current Doha Development Agenda.
At the end of the Uruguay Round, developing countries were prepared to take on most
of the obligations that are required of developed countries. But the agreements did give
them transition periods to adjust to the more unfamiliar and perhaps, difficult to WTO
provisions — particularly so for the poorest, “least-developed” countries. A ministerial
decision adopted at the end of the round says better off countries should accelerate
implementing market access commitments on goods exported by the least developed
countries and it seeks increased technical assistance for them. More recently developed
countries have started to allow duty free and quota free imports for almost all products
from least developed countries. On all of this, the WTO and its members are still going
through a learning process. The current Doha Development Agenda includes developing
countries’ concerns about the difficulties they face in implementing
The Uruguay Round agreements.
The case for open trade
The economic case for an open trading system based on multilaterally
agreed rules is
simple enough and rests largely on commercial common sense. But it is also supported
b y e v i d e n c e : t h e e x p e r i e n c e o f w o r l d t r a d e a n d e c o n o m i c
g r o w t h s i n c e t h e S e c o n d
World War. Tariffs on industrial products have fallen steeply and now average less than
5% in industrial countries. During the first 25 years after the war, world
economic
growth averaged about 5% per year, a high rate that was partly the result of lower trade
barriers. World trade grew even faster, averaging about 8% during the period.
T h e d a t a s h o w a d e f i n i t e s t a t i s t i c a l l i n k b e t w e e n f r e e r t r a d e a n d
e c o n o m i c g r o w t h .
E c o n o m i c t h e o r y p o i n t s t o s t r o n g r e a s o n s f o r t h e l i n k . A l l
c o u n t r i e s , i n c l u d i n g t h e
poorest, have assets — human, industrial, natural, financial — which they can employ
t o p r o d u c e g o o d s a n d s e r v i c e s f o r t h e i r d o m e s t i c m a r k e t s o r t o
c o m p e t e o v e r s e a s .
E c o n o m i c s t e l l s u s t h a t w e c a n b e n e f i t w h e n t h e s e g o o d s a n d
s e r v i c e s a r e t r a d e d .
Simply put, the principle of “comparative advantage” says that countries
prosper first
by taking advantage of their assets in order to concentrate on what they
can produce
best, and then by trading these products for products that other countries produce best.
In other words, liberal trade policies — policies that allow the
unrestricted flow of
goods and services — sharpen competition, motivate innovation and breed
success.
They multiply the rewards that result from producing the best products,
with the best
design, at the best price.
But success in trade is not static. The ability to compete well in particular products can
shift from company to company when the market changes or new
technologies make
cheaper and better products possible. Producers are encouraged to adapt gradually and
in a relatively painless way. They can focus on new products, find a new
“niche” in
their current area or expand into new areas.
E x p e r i e n c e s h o w s t h a t c o m p e t i t i v e n e s s c a n a l s o s h i f t b e t w e e n
w h o l e c o u n t r i e s . A
country that may have enjoyed an advantage because of lower labour costs or because it
had good supplies of some natural resources, could also become uncompetitive in some
goods or services as its economy develops. However, with the stimulus of
an open
e c o n o m y, t h e c o u n t r y c a n m o v e o n t o b e c o m e c o m p e t i t i v e i n
s o m e o t h e r g o o d s o r
services. This is normally a gradual process.
Nevertheless, the temptation to ward off the challenge of competitive imports is always
p r e s e n t . A n d r i c h e r g o v e r n m e n t s a r e m o r e l i k e l y t o
y i e l d t o t h e s i r e n c a l l o f
protectionism, for short term political gain — through subsidies, complicated red tape,
and hiding behind legitimate policy objectives such as environmental
preservation or
consumer protection as an excuse to protect producers.
Protection ultimately leads to bloated, inefficient producers supplying consumers with
outdated, unattractive products. In the end, factories close and jobs are lost despite the
p r o t e c t i o n a n d s u b s i d i e s . I f o t h e r g o v e r n m e n t s a r o u n d t h e
w o r l d p u r s u e t h e s a m e
p o l i c i e s , m a r k e t s c o n t r a c t a n d w o r l d e c o n o m i c a c t i v i t y
i s r e d u c e d . O n e o f t h e
o b j e c t i v e s t h a t g o v e r n m e n t s b r i n g t o W T O n e g o t i a t i o n s i s t o
p r e v e n t s u c h a s e l f -
defeating and destructive drift into protectionism.
Comparative advantage
This is arguably the single most powerful insight into economics.
Suppose country A is better than country B at making automobiles, and country B
is better than country A at making bread. It is obvious (the academics would say
“trivial”) that both would benefit if A specialized in automobiles, B specialized in
bread and they traded their products. That is a case of
absolute advantage
.
But what if a country is bad at making everything? Will trade drive all producers
out of business? The answer, according to Ricardo, is no. The reason is the
principle of
comparative advantage
.
It says, countries A and B still stand to benefit from trading with each other even if
A is better than B at making everything. If A is much more superior at making
automobiles and only slightly superior at making bread, then A should still invest
resources in what it does best — producing automobiles — and export the product
to B. B should still invest in what it does best — making bread — and export that
product to A, even if it is not as efficient as A. Both would still benefit from the
trade. A country does not have to be best at anything to gain from trade. That is
comparative advantage.
The theory dates back to classical economist David Ricardo. It is one of the most widely
accepted among economists. It is also one of the most misunderstood
among non-economists because it is confused with absolute advantage.
It is often claimed, for example, that some countries have no comparative
advantage in anything. That is virtually impossible.
GATT: ‘provisional’ for almost half a century
From 1948 to 1994, the General Agreement on Tariffs and Trade (GATT) provided the
rules for much of
world trade and presided over periods that saw some of the highest growth rates in
international commerce.
It seemed well-established, but throughout those 47 years, it was a provisional agreement
and organization.
The original intention was to create a third institution to handle the trade
side of international economic
cooperation, joining the two “Bretton Woods” institutions, the World Bank and the
International Monetary
Fund. Over 50 countries participated in negotiations to create an International Trade
Organization (ITO) as
a specialized agency of the United Nations. The draft ITO Charter was
ambitious. It extended beyond
world trade disciplines, to include rules on employment, commodity
agreements, restrictive business
practices, international investment, and services.
Even before the talks concluded, 23 of the 50 participants decided in 1946 to negotiate to
reduce and bind
customs tariffs. With the Second World War only recently ended, they
wanted to give an early boost to
trade liberalization, and to begin to correct the legacy of protectionist
measures which remained in place
from the early 1930s.
This first round of negotiations resulted in 45,000 tariff concessions
affecting $10 billion of trade, about
one fifth of the world’s total. The 23 also agreed that they should accept some of the trade
rules of the draft
ITO Charter. This, they believed, should be done swiftly and “provisionally” in order to
protect the value of
the tariff concessions they had negotiated. The combined package of trade
rules and tariff concessions
became known as the General Agreement on Tariffs and Trade. It entered into force in
January 1948, while
t h e I T O C h a r t e r w a s s t i l l b e i n g n e g o t i a t e d . T h e 2 3 b e c a m e
f o u n d i n g G AT T m e m b e r s ( o f f i c i a l l y ,
“contracting parties”).
Although the ITO Charter was finally agreed at a UN Conference on Trade and
Employment in Havana in
March 1948, ratification in some national legislatures proved impossible. The most
serious opposition was
in the US Congress, even though the US government had been one of the
driving forces. In 1950, the
United States government announced that it would not seek Congressional
ratification of the Havana
Charter, and the ITO was effectively dead. Even though it was provisional,
the GATT remained the only
multilateral instrument governing international trade from 1948 until the WTO was
established in 1995.
For almost half a century, the GATT’s basic legal principles remained much as they were
in 1948. There
were additions in the form of a section on development added in the 1960s
and “plurilateral” agreements (i.e. with voluntary membership) in the 1970s, and
efforts to reduce tariffs further continued. Much of this
was achieved through a series of multilateral negotiations known as “trade
rounds” — the biggest leaps
f o r w a r d i n i n t e r n a t i o n a l t r a d e l i b e r a l i z a t i o n h a v e c o m e t h r o u g h
t h e s e r o u n d s w h i c h w e r e h e l d u n d e r
GATT’s auspices.
In the early years, the GATT trade rounds concentrated on further
reducing tariffs. Then, the Kennedy
Round in the mid-sixties brought about a GATT Anti-Dumping Agreement and a section
on development.
The Tokyo Round during the seventies was the first major attempt to tackle trade barriers
that do not take
the form of tariffs, and to improve the system. The eighth, the Uruguay Round of 1986–
94, was the last and
most extensive of all. It led to the WTO and a new set of agreements.
The Uruguay Round
It took seven and a half years, almost twice the original schedule. By the
end, 123 countries were taking
part. It covered almost all trade, from toothbrushes to pleasure boats, from banking to
telecommunications,
from the genes of wild rice to AIDS treatments. It was quite simply the largest trade
negotiation ever, and
most probably the largest negotiation of any kind in history.
At times it seemed doomed to fail. But in the end, the Uruguay Round brought about the
biggest reform of
the world’s trading system since GATT was created at the end of the Second World War.
And yet, despite
its troubled progress, the Uruguay Round did see some early results.
Within only two years, participants
had agreed on a package of cuts in import duties on tropical products —
which are mainly exported by
d e v e l o p i n g c o u n t r i e s . T h e y h a d a l s o r e v i s e d t h e r u l e s
f o r s e t t l i n g d i s p u t e s , w i t h s o m e m e a s u r e s
implemented on the spot. And they called for regular reports on GATT
members’ trade policies, a move
considered important for making trade regimes transparent around the world.
The post-Uruguay Round built-in agenda
Many of the Uruguay Round agreements set timetables for future work.
Part of this “built-in agenda”
s t a r t e d a l m o s t i m m e d i a t e l y. I n s o m e a r e a s , i t i n c l u d e d n e w o r
f u r t h e r n e g o t i a t i o n s . I n o t h e r a r e a s , i t
i n c l u d e d a s s e s s m e n t s o r r e v i e w s o f t h e s i t u a t i o n a t s p e c i f i e d
t i m e s . S o m e n e g o t i a t i o n s w e r e q u i c k l y
completed, notably in basic telecommunications, financial services.
(Member governments also swiftly
agreed a deal for freer trade in information technology products, an issue outside the
“built-in agenda”.)
The agenda originally built into the Uruguay Round agreements has seen
additions and modifications. A
number of items are now part of the Doha Agenda, some of them updated.
There were well over 30 items in the original built-in agenda. This is a selection of
highlights:
1996
• Maritime services: market access negotiations to end (30 June 1996, suspended to 2000,
now part of
Doha Development Agenda)
• Services and environment: deadline for working party report (ministerial conference,
December 1996)
• Government procurement of services: negotiations start
1997
• Basic telecoms: negotiations end (15 February)
• Financial services: negotiations end (30 December)
• Intellectual property, creating a multilateral system of notification and registration of
geographical
indications for wines: negotiations start, now part of Doha Development Agenda
1998
• Textiles and clothing: new phase begins 1 January
• Services (emergency safeguards): results of negotiations on emergency safeguards to
take effect (by 1
January 1998, deadline now March 2004)
• Rules of origin: Work programme on harmonization of rules of origin to be completed
(20 July 1998)
• Government procurement: further negotiations start, for improving rules and procedures
(by end of
1998)
• Dispute settlement: full review of rules and procedures (to start by end of 1998)
1999
• Intellectual property: certain exceptions to patentability and protection of plant
varieties: review starts
2000
• Agriculture: negotiations start, now part of Doha Development Agenda
• Services: new round of negotiations start, now part of Doha Development Agenda
• Tariff bindings: review of definition of “principle supplier” having negotiating rights
under GATT Art
28 on modifying bindings
• Intellectual property: first of two-yearly reviews of the implementation of the agreement
2002
• Textiles and clothing: new phase begins 1 January
2007
• Textiles and clothing: full integration into GATT and agreement expires 1 January
Overview: a navigational guide
The WTO Agreements cover goods, services and intellectual property.
They spell out the principles of
liberalization, and the permitted exceptions. They include individual
countries’ commitments to lower
customs tariffs and other trade barriers, and to open and keep open services markets.
They set procedures
for settling disputes. They prescribe special treatment for developing countries. They
require governments
to make their trade policies transparent by notifying the WTO about laws
in force and measures adopted,
and through regular reports by the secretariat on countries’ trade policies.
These agreements are often called the WTO’s trade rules, and the WTO is often
described as “rules-based”,
a s y s t e m b a s e d o n r u l e s . B u t i t ’ s i m p o r t a n t t o r e m e m b e r t h a t
t h e r u l e s a r e a c t u a l l y a g r e e m e n t s t h a t
governments negotiated.
This chapter focuses on the Uruguay Round agreements, which are the basis of the
present WTO system.
Additional work is also now underway in the WTO. This is the result of
decisions taken at Ministerial
Conferences, in particular the meeting in Doha, November 2001, when
new negotiations and other work
were launched. (More on the Doha Agenda, later.)
Six-part broad outline
“The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts”
is a daunting list of about 60 agreements, annexes, decisions and
understandings. In fact, the agreements fall into a simple structure with six
main parts: an umbrella agreement (the Agreement Establishing the WTO); agreements
for each of the three broad areas of trade that the WTO covers (goods, services and
intellectual property); dispute settlement; and reviews of governments’ trade policies.
The agreements for the two largest areas — goods and services — share a common three-
part outline, even though the detail is sometimes quite different.
• They start with broad principles : the General Agreement on Tariffs and Trade (GATT)
(for goods), and t h e G e n e r a l A g r e e m e n t o n T r a d e i n S e r v i c e s
( G AT S ) . ( T h e t h i r d a r e a , T r a d e - R e l a t e d A s p e c t s o f Intellectual
Property Rights (TRIPS), also falls into this category although at present it has no
additional parts.)
• Then come extra agreements and annexes dealing with the special requirements of
specific sectors or issues.
• Finally, there are the detailed and lengthy schedules (or lists) of
commitments made by individual countries allowing specific foreign
products or service-providers access to their markets. For GATT,
these take the form of binding commitments on tariffs for goods in general, and
combinations of tariffs and quotas for some agricultural goods. For GATS, the
commitments state how much access foreign service providers are allowed
for specific sectors, and they include lists of types of services where
i n d i v i d u a l c o u n t r i e s s a y t h e y a r e n o t a p p l y i n g t h e
“ m o s t - f a v o u r e d - n a t i o n ” p r i n c i p l e o f n o n - discrimination.
Underpinning these are dispute settlement, which is based on the agreements and
commitments, and trade policy reviews, an exercise in transparency.
Much of the Uruguay Round dealt with the first two parts: general
principles and principles for specific s e c t o r s . A t t h e s a m e t i m e ,
m a r k e t a c c e s s n e g o t i a t i o n s w e r e p o s s i b l e f o r i n d u s t r i a l g o o d s .
O n c e t h e p r i n c i p l e s h a d b e e n w o r k e d o u t , n e g o t i a t i o n s c o u l d
p r o c e e d o n t h e c o m m i t m e n t s f o r s e c t o r s s u c h a s agriculture and
services.
Tariffs: more bindings and closer to zero
The bulkiest results of Uruguay Round are the 22,500 pages listing individual countries’
commitments on specific categories of goods and services. These include commitments
to cut and “bind” their customs duty rates on imports of goods. In some cases, tariffs are
being cut to zero. There is also a significant increase in the number of “bound” tariffs —
duty rates that are committed in the WTO and are difficult to raise.
Tariff cuts
Developed countries’ tariff cuts were for the most part phased in over five years from 1
January 1995. The result is a 40% cut in their tariffs on industrial products,
from an average of 6.3% to 3.8%. The value of imported industrial products
that receive duty-free treatment in developed countries will jump from 20% to 44%.
T h e r e w i l l a l s o b e f e w e r p r o d u c t s c h a r g e d h i g h d u t y r a t e s . T h e
p r o p o r t i o n o f i m p o r t s i n t o d e v e l o p e d countries from all sources facing
tariffs rates of more than 15% will decline from 7% to 5%. The proportion of developing
country exports facing tariffs above 15% in industrial countries will fall from 9% to 5%.
The Uruguay Round package has been improved. On 26 March 1997, 40
countries accounting for more than 92% of world trade in information
technology products, agreed to eliminate import duties and other charges on
these products by 2000 (by 2007 in a handful of cases). As with other tariff commitments,
each participating country is applying its commitments equally to exports from all WTO
members (i.e. on a most-favored-nation basis), even from members that did not make
commitments.
More bindings
Developed countries increased the number of imports whose tariff rates
are “bound” (committed and
d i f f i c u l t t o i n c r e a s e ) f r o m 7 8 % o f p r o d u c t l i n e s t o 9 9 % . F o r
d e v e l o p i n g c o u n t r i e s , t h e i n c r e a s e w a s
considerable: from 21% to 73%. Economies in transition from central
planning increased their bindings
from 73% to 98%. This all means a substantially higher degree of market security for
traders and investors.
Agriculture: fairer markets for farmers
The original GATT did apply to agricultural trade, but it contained
loopholes. For example, it allowed
countries to use some non-tariff measures such as import quotas, and to
subsidize. Agricultural trade
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 sector. It was a significant first step towards order, fair competition and a less
distorted sector. It was
implemented over a six year period (and is still being implemented by developing
countries under their 10-
year period), that began in 1995. The Uruguay Round agreement included
a commitment to continue the
reform through new negotiations. These were launched in 2000, as required by the
Agriculture Agreement.
The Agriculture Agreement: new rules and commitments
The objective of the
Agriculture Agreement
is to reform trade in the sector and to make policies more
market-oriented. This would improve predictability and security for
importing and exporting countries
alike.
The new rules and commitments apply to:
•
market access
— various trade restrictions confronting imports
•
domestic support
— subsidies and other programmes, including those that raise or guarantee farmgate
prices and farmers’ incomes
•
export subsidies
and other methods used to make exports artificially competitive.
The agreement does allow governments to support their rural economies,
but preferably through policies
that cause less distortion to trade. It also allows some flexibility in the way commitments
are implemented.
D e v e l o p i n g c o u n t r i e s d o n o t h a v e t o c u t t h e i r s u b s i d i e s o r
l o w e r t h e i r t a r i f f s a s m u c h a s d e v e l o p e d
countries, and they are given extra time to complete their obligations. Least-developed
countries don’t have
to do this at all . Special provisions deal with the interests of countries
that rely on imports for their food
supplies, and the concerns of least-developed economies.
“ P e a c e ” p r o v i s i o n s w i t h i n t h e a g r e e m e n t a i m t o r e d u c e t h e
l i k e l i h o o d o f d i s p u t e s o r c h a l l e n g e s o n
agricultural subsidies over a period of nine years, until the end of 2003.
Standards and safety
Article 20 of the General Agreement on Tariffs and Trade (GATT) allows governments
to act on trade in
order to protect human, animal or plant life or health, provided they do
not discriminate or use this as
disguised protectionism. In addition, there are two specific WTO agreements dealing with
food safety and
animal and plant health and safety, and with product standards.
Food, animal and plant products: how safe is safe?
Problem: How do you ensure that your country’s consumers are being supplied with food
that is safe to eat
— “safe” by the standards you consider appropriate? And at the same time, how can you
ensure that strict
health and safety regulations are not being used as an excuse for protecting domestic
producers?
A s e p a r a t e a g r e e m e n t o n f o o d s a f e t y a n d a n i m a l a n d
p l a n t h e a l t h s t a n d a r d s ( t h e
S a n i t a r y a n d
Phytosanitary Measures Agreement
or
SPS
) sets out the basic rules.
It allows countries to set their own standards. But it also says regulations must be based
on science. They
should be applied only to the extent necessary to protect human, animal or
plant life or health. And they
should not arbitrarily or unjustifiably discriminate between countries where identical or
similar conditions
prevail.
Member countries are encouraged to use international standards,
guidelines and recommendations where
they exist. However, members may use measures which result in higher
standards if there is scientific
justification. They can also set higher standards based on appropriate
assessment of risks so long as the
approach is consistent, not arbitrary. And they can to some extent apply
the “precautionary principle”, a
kind of “safety first” approach to deal with scientific uncertainty. Article 5.7 of the SPS
Agreement allows
temporary “precautionary” measures.
T h e a g r e e m e n t s t i l l a l l o w s c o u n t r i e s t o u s e d i f f e r e n t s t a n d a r d s
a n d d i f f e r e n t m e t h o d s o f i n s p e c t i n g
products. So how can an exporting country be sure the practices it applies to its products
are acceptable in
an importing country? If an exporting country can demonstrate that the
measures it applies to its exports
achieve the same level of health protection as in the importing country,
then the importing country is
expected to accept the exporting country’s standards and methods.
The agreement includes provisions on control, inspection and approval procedures.
Governments must
provide advance notice of new or changed sanitary and phytosanitary regulations, and
establish a national
enquiry point to provide information. The agreement complements that on technical
barriers to trade.
Technical regulations and standards
Technical regulations and industrial standards are important, but they vary from country
to country. Having
too many different standards makes life difficult for producers and
exporters. If the standards are set
arbitrarily, they could be used as an excuse for protectionism. Standards can become
obstacles to trade.
The
Technical Barriers to Trade
Agreement (TBT)
tries to ensure that regulations, standards, testing and
certification procedures do not create unnecessary obstacles.
The agreement recognizes countries’ rights to adopt the standards they consider
appropriate — for example,
for human, animal or plant life or health, for the protection of the environment or to meet
other consumer
interests. Moreover, members are not prevented from taking measures necessary to
ensure their standards
are met. In order to prevent too much diversity, the agreement encourages
countries to use international
standards where these are appropriate, but it does not require them to change their levels
of protection as a
result.
The agreement sets out a code of good practice for the preparation,
adoption and application of standards
by central government bodies. It also includes provisions describing how
local government and non-
governmental bodies should apply their own regulations — normally they should use the
same principles as
apply to central governments.
The agreement says the procedures used to decide whether a product
conforms with national standards
have to be fair and equitable. It discourages any methods that would give domestically
produced goods an
unfair advantage. The agreement also encourages countries to recognize
each other ’s testing procedures.
That way, a product can be assessed to see if it meets the importing country’s standards
through testing in
the country where it is made.
Manufacturers and exporters need to know what the latest standards are in
their prospective markets. To
h e l p e n s u r e t h a t t h i s i n f o r m a t i o n i s m a d e a v a i l a b l e
c o n v e n i e n t l y , a l l W T O m e m b e r g o v e r n m e n t s a r e
required to establish national enquiry points.
Non-tariff barriers: red tape, etc
A number of agreements deal with various bureaucratic or legal issues that
could involve hindrances to
trade.
• import licensing
• rules for the valuation of goods at customs
• preshipment inspection: further checks on imports
• rules of origin: made in ... where?
• investment measures
Import licensing: keeping procedures clear
Although less widely used now than in the past, import licensing systems are subject to
disciplines in the
W T O . T h e
A g r e e m e n t o n I m p o r t L i c e n s i n g P r o c e d u r e s
s a y s i m p o r t l i c e n s i n g s h o u l d b e s i m p l e ,
t r a n s p a r e n t a n d p r e d i c t a b l e . F o r e x a m p l e , t h e a g r e e m e n t
r e q u i r e s g o v e r n m e n t s t o p u b l i s h s u f f i c i e n t
information for traders to know how and why the licences are granted. It
also describes how countries
s h o u l d n o t i f y t h e W T O w h e n t h e y i n t r o d u c e n e w i m p o r t
l i c e n s i n g p r o c e d u r e s o r c h a n g e e x i s t i n g
procedures. The agreement offers guidance on how governments should assess
applications for licences.
S o m e l i c e n c e s a r e i s s u e d a u t o m a t i c a l l y i f c e r t a i n c o n d i t i o n s a r e
m e t . T h e a g r e e m e n t s e t s c r i t e r i a f o r
automatic licensing so that the procedures used do not restrict trade.
Other licences are not issued automatically. Here, the agreement tries to minimize the
importers’ burden in
applying for licences, so that the administrative work does not in itself
restrict or distort imports. The
agreement says the agencies handling licensing should not normally take more than 30
days to deal with an
application — 60 days when all applications are considered at the same time.
The WTO is run by its member
governments. All major decisions are
made by the membership as a
whole, either by ministers (who meet at
least once every two years) or by their
ambassadors or delegates (who meet
regularly in
Ge n eva) . Decisions are
normally taken by
consensus.
In this respect, the WTO is different from some other international organizations such as
the World Bank
a n d I n t e r n a t i o n a l M o n e t a r y F u n d . I n t h e W T O , p o w e r i s n o t
d e l e g a t e d t o a b o a r d o f d i r e c t o r s o r t h e
organization’s head.
When WTO rules impose disciplines on countries’ policies, that is the
outcome of negotiations among
WTO members. The rules are enforced by the members themselves under
agreed procedures that they
n e g o t i a t e d , i n c l u d i n g t h e p o s s i b i l i t y o f t r a d e s a n c t i o n s . B u t
t h o s e s a n c t i o n s a r e i m p o s e d b y m e m b e r
countries, and authorized by the membership as a whole. This is quite different from
other agencies whose
bureaucracies can, for example, influence a country’s policy by threatening to withhold
credit.
Reaching decisions by consensus among some 150 members can be
difficult. Its main advantage is that
decisions made this way are more acceptable to all members. And despite the difficulty,
some remarkable
agreements have been reached. Nevertheless, proposals for the creation of
a smaller executive body —
perhaps like a board of directors each representing different groups of countries — are
heard periodically.
But for now, the WTO is a member-driven, consensus-based organization.