The World Trading System:The World Trading System:Trade Liberalization between the Trade Liberalization between the

Multilateral System and the Regional Multilateral System and the Regional Trade AgreementsTrade Agreements

(prepared for CDS. 05, Jaipur 16-19 July, 2008)(prepared for CDS. 05, Jaipur 16-19 July, 2008)

Ahmed F. GhoneimCairo University

Email address: aghoneim@gmx.de

What is meant by Trade What is meant by Trade Liberalization? Liberalization?

Trade liberalization is not any more confined only to reduction of tariffs, but has now been extended to dealing with domestic rules and regulations, standards, services, intellectual property rights, labor and environmental issues.

The World Trading System:The World Trading System:

1) World Trade Organization (GATT, GATS, TRIPS)

2) Regional Trade Agreements

3) Other systems

The World Trading SystemThe World Trading System

Other Systems

RTAsWTO

World Trade Organization World Trade Organization

Bretton Wood’s Institutions in 1947: (World Bank, International Monetary Fund, and International Trade Organization)

US Failed to ratify the Havana Charter to create ITO

Protocol of Provisional Application of GATT instead of ITO

Eight Successful Rounds of Multilateral Negotiations for Trade Liberalization under GATT

Original 23 Contracting Parties included 11 Developing Countries (DCs)

Many DCs did not join No effective participation of DCs until the

Tokyo Round, 1974-1979 Import substitution the dominant dogma

The Uruguay Round – 1986-The Uruguay Round – 1986-19941994

Torturous Negotiations Over 7 Years Single Undertaking Establishment of the WTO Agreement on Agriculture and GATS TRIMS and TRIPS Dispute Settlement System

GATT aims at liberalization of trade through reduction of tariffs and elimination of non-tariff barriers. Its two main principles are Most Favored Nation (MFN) and National Treatment.

WTO is based on the same rules of GATT but is extended as well to services and intellectual property rights.

There are 153 members of the WTO.

What is the World What is the World Trade Organization (WTO)?Trade Organization (WTO)?

Institutional framework for – Negotiation of global trade agreements– Implementing global trade agreements– Settling disputes under the global trade

agreements– Reviewing trade policies– Admitting new members

Who Governs the WTO?Who Governs the WTO?

The Member Countries (one country one vote rule). There are 152 member countries

Decision is based on consensus Contrast to World Bank and IMF

(controlling their boards by U.S. and EU)

Ministerial ConferenceMinisterial Conference

General CouncilGeneral Council

Council for Trade in Services

Council for TRIPS

Council for Trade

in Goods

DSBTrade Policy Review Mechanism

Who Manages the WTO?Who Manages the WTO?

The WTO Secretariat Headed by a Director General

Legal Components of WTOLegal Components of WTO

GATT (Agreement on Trade in Goods), now called WTO agreements

GATS (Agreement on Trade in Services) TRIPS (Intellectual Property Agreement) WTO Institutional Arrangement (Dispute

Settlement Mechanism and Trade Policy Review)

Plurilateral Agreements

Fundamental WTO PrinciplesFundamental WTO Principles Transparency

MFN

National treatment

Due process

Reciprocity – balance of concessions – balance of rights and obligations

Least trade distorting standard

Basic GATT FrameworkBasic GATT Framework

Barriers should be at the border

Barriers should be in the form of tariffs

No internal barriers in domestic laws

No discrimination among members

Legal binding of maximum tariffs in national schedules

Certain enumerated exceptions permitted

GATSGATS Trade defined in different modes of supply including 1)

cross-border movement, 2) consumption abroad, 3) commercial presence, 4) temporary movement of natural persons GATS contains

Rules– Rules that apply to all services - transparency of laws, regulations,

decisions, and MFN– Rules covering sectors in which products are listed in national

schedules schedules– Rules covering products listed in schedules

National commitments on– National treatment – Market access (government regulations that limit decisions by

producers and suppliers of services.)

Intellectual Property - TRIPSIntellectual Property - TRIPS● General Provisions & Principles

● Standards of Protection– copyrights, patents– trade marks, trade secrets, industrial design– marks of geographic origin

● Enforcement

Dispute Settlement ProcessDispute Settlement Process

● Country must first seek to resolve dispute through bilateral consultations

● For unresolved disputes, DSB establishes panel, terms of reference

● Meetings with parties, third parties, experts

● DSB adopts Panel Report

● Request for review by Appellate Body

● Compliance, compensation or retaliation

How Are Negotiations How Are Negotiations Organized in the WTO?Organized in the WTO?

● National commitments on trade measures– Request & offer procedures– Use of formulas, agreed targets, objectives

● Agreements on trade rules– Issue studied by Study and/or Working Group– Creation of negotiation committee

It is the ministers who decide to launch a new round in their ministerial meetings

Current Status of Doha RoundCurrent Status of Doha Round

● Negotiations are at an impasse, largely as a result of a disagreement over agriculture

● Disputes over agriculture have hampered negotiations over tariffs and services

● There is also a major disagreement over what makes the Doha Round a Development Round

● U.S. needs an extension of congressional authority to negotiate

● Delays in the conclusion of multilateral trade rounds are quite common, and do not signify end of WTO

Scheme Free intra-

scheme trade

Common Commercial Policy

Free Factor

Mobility

Common monetary & fiscal policy

One government

Free Trade Areas

Yes No No No No

Customs Union

Yes Yes No No No

Common Market

Yes Yes Yes No No

Economic Union

Yes Yes Yes Yes No

Reasons for Increased Number of Reasons for Increased Number of RTAs:RTAs:

US Policy towards signing more RTAs

Slowness in WTO negotiations

Domino effect.

385 RTAs have been notified to the GATT/WTO

up to July 2007. This number has increased four times since the beginning of the 1990s.

India has a number of RTAs including Sri Lanka, Thailand, Bhutan, Singapore, ASEAN, SAFTA, talks on FTA with EU, China, Brazil, South Africa, etc.

Regional Trade AgreementsRegional Trade Agreements

1995 2002 2007

No. of RTAs 130 250 385

RTAs in the context of World Trade Organization (WTO)RTAs in the context of World Trade Organization (WTO)

• There are two types of RTAs: Shallow and Deep RTAs

- The shallow RTAs deal with border issues only and are more confined to manufactured products (proliferated in the 1960s)

- The deep RTAs deal with border and non border issues and cover manufactured goods, services as well as rules and regulations (started to proliferate mid 1980s)

• With the stumbling of World Trade Organization talks, there is a great diversion to RTAs, whether this is good or bad for the welfare of the world economy is debatable

Potential Effects of Regional Trade Agreements on Developing CountriesPotential Effects of Regional Trade Agreements on Developing Countries

ProsPros Promotion of Foreign Direct Investment Security of Market Access Exploitation of Economies of Scale Trade Creation

ConsCons

Tariff revenue lossTrade DiversionReduces Preferential treatment for other countries’ exports

Trade-Creating Customs UnionTrade-Creating Customs Union

Trade-Diverting Customs UnionTrade-Diverting Customs Union

Potential effects of Regional Trade Agreements on Developing Potential effects of Regional Trade Agreements on Developing CountriesCountries

Other Effects (can be +ve or -ve)

Harmonization issues. Political economy aspects. Articles concerning Labor Laws (child labor)

especially in sectors as cotton and related industries.

Articles concerning government procurement. Articles concerning Environment and related

strict clauses.

Examples of RTAs in the Examples of RTAs in the WorldWorld

•North America Free Trade Area North America Free Trade Area (NAFTA):(NAFTA): The largest FTA in the world

•European Union:European Union: The largest customs union in the world

Conditions for effective Conditions for effective liberalizationliberalization

Domestic institutions need to be ready before any embarking on liberalization (including intelligent negotiations and effective commercial diplomacy)

Ways to overcome costs of liberalization should be put in place.

Thank you