World Trade ion

7/31/2019 World Trade ion

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World Trade Organisation

A Brief History:

At the height of second world war, in 1944 representatives from 44countries met at Bretton Woods, New Hampshire to discuss andevolve agreements on two issues

1. Reconstruction and Development of War Torn countriesparticularly that of Europe, and

2. Design a new monetary system

(Competitive Devaluation with the objective of BeggarThy Neighbor)

The agreement reached at Bretton Woods established two

multinational institutes

International Monetary Fund (IMF), and

International Bank for Reconstruction and Development(IBRD)


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World Trade Organisation A Brief History

IBRD was subsequently known as The World Bank

The Task as envisaged in agreements were

IMF = To maintain order in international monetary System

World Bank = To promote general economic developmentBretton Woods agreement also sought commitment of countries not usecurrency devaluation as a weapon of competitive trade policy

The intention at Bretton Woods was to create a third institute that handleinternational Economic cooperation.

The complete plan of over 50 countries was to create an InternationalTrade Organisation (ITO) as a specialised agency of the United Nations


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International Trade Organisation (ITO)

The Draft ITO charter was ambitious, it extended beyond World Tradedisciplines to include

Rules on employment

Commodity agreements

Restrictive business practices

International investment, and

Services.

1946 Even before the ITO charter was finally approved, 23 of the 50participants decided to negotiate to reduce and bind custom tariffs

The 23 also agreed that they should accept some of the trade rules ofthe draft ITO charter.

It entered into force in January 1948, while the ITO charter was stillbeing negotiated, and 23 became the founding GATT members. (Officially contracting parties)


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International Trade Organisation (ITO)

The ITO charter was finally agreed at a UN conference on Tradeand employment in Havana in March 1948, ratification in somenational legislatures proved impossible.

The most serious problem encountered the US congress refusal toseek congressional ratification of the Havana charter ( Even thoughUS was the driving force), and the ITO was dead.


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GATT

At the demise of ITO, GATT (Though provisional, remained the only

multilateral instrument governing international trade from 1948 to1995, until the WTO was established


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WTO

Location: Geneva, SwitzerlandEstablished: 1 January 1995

Created by: Uruguay Round negotiations (1986-94)Membership: 153 countries (as on March, 2008)


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WTOObjectives

1. To help trade flow as freely as possible.

2. To achieve further liberalization gradually through negotiation,and

3. To set up an impartial means of settling disputes.


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To help trade flow as freely as possible.

The systems overriding purpose is to help trade flow as freely aspossible so long as there are no undesirable side effects.

That partly means removing obstacles. It also means ensuring thatindividuals, companies and governments know what the trade rulesare around the world, and giving them the confidence that there willbe no sudden changes of policy.

In other words, the rules have to be transparent and predictable.


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To achieve further liberalization graduallythrough negotiation

Because the agreements are drafted and signed by the community oftrading nations, often after considerable debate and controversy, one of

the WTOs most important function is to serve as a forum for tradenegotiations arriving at agreements on further liberalisation.


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To set up an impartial means of settlingdisputes.

A third important side to the WTOs work is dispute settlement.

Trade relations often involve conflicting interests. Contracts andagreements, including those painstakingly negotiated in the WTOsystem, often need interpreting.

The most harmonious way to settle these differences is through someneutral procedure based on an agreed legal foundation.

That is the purpose behind the dispute settlement process written intothe WTO agreements.


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The System Operated by WTO

Multilateral trading system

Most nations including almost all the main trading nations aremembers of the system.

But some are not, and that is why the word multilateral is used,

instead of global or world, to describe the system.In WTO affairs, the word has an additional important meaning. Here,multilateral refers to activities on a global or near-global level (inparticular among all WTO members).

It contrasts with actions taken regionally or by other smaller groups of

countries. (This is different from the common use of the word in otherareas of international relations where, for example, a multilateralsecurity arrangement can be regional.)


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Principles of WTO trading system

Without discrimination

Freer

Predictable

More Competitive

More Beneficial For LDCs


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Without discrimination

A country should not discriminate between its trading partners (theyare all, equally, granted most-favoured-nation or MFN status); and itshould not discriminate between its own and foreign products, servicesor nationals (they are given nationaltreatment).


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Freer Trade

With barriers coming down through negotiation


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Predictable Trade

Foreign companies, investors and governments should be confidentthat trade barriers (including tariffs, non-tariff barriers and othermeasures) should not be raised arbitrarily; more and more tariff ratesand market-opening commitments are bound in the WTO.


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More Competitive

More Competitive by discouraging unfair practices such asexport subsidies and dumping products at below cost to gain market

share.


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More Beneficial For LDCs

More Beneficial For Less Developed Countries by giving them

more time to adjust, greater flexibility, and special privileges.


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Trade without discrimination

1. Most-favoured-nation (MFN): Treating other people equally

Under the WTO Agreements, countries cannot normally discriminatebetween their trading partners. Grant someone a special favour (suchas a lower customs duty rate for one of their products) and you have todo the same for all other WTO members.

This principle is known as most-favoured-nation (MFN) treatment).

It is so important that it is the first article of the General Agreement onTariffs and Trade (GATT), which governs trade in goods.

MFN is also a priority in the General Agreement on Trade in Services

(GATS) and theAgreement on Trade-Related Aspects of Intellectual Property Rights(TRIPS) , although in each agreement the principle is handled slightlydifferently. Together, those three agreements cover all three main areasof trade handled by the WTO.


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Trade without discrimination

2. National treatment: treating foreigners and locals equallyImported and locally-produced goods should be treated equally atleast after the foreign goods have entered the market. The sameshould apply to foreign and domestic services, and to foreign and localtrademarks, copyrights and patents.

This principle of nationaltreatment (giving others the same treatmentas one's own nationals) is also found in all the three main WTOagreements, although once again the principle is handled slightlydifferently in each of these.


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Freer trade: Gradually, through negotiation

Lowering trade barriers is one of the most obvious means ofencouraging trade.

The barriers concerned include customs duties (or tariffs) andmeasures such as import bans or quotas that restrict quantitiesselectively.

From time to time other issues such as red tape and exchange ratepolicies have also been discussed.

Since GATT's creation in 1947- 48 there have been eight rounds oftrade negotiations.

At first these focused on lowering tariffs (customs duties) on importedgoods. As a result of the negotiations, by the late 1980s industrialcountries' tariff rates on industrial goods had fallen steadily to about6.3%.


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Predictability: Through Binding

Sometimes, promising not to raise a trade barrier can be asimportant as lowering one, because the promise gives businessesa clearer view of their future opportunities.

With stability and predictability, investment is encouraged, jobs arecreated and consumers can fully enjoy the benefits of competition

choice and lower prices.The multilateral trading system is an attempt by governments tomake the business environment stable and predictable.

Percentages of tariffs bound before and after the 1986-94 talks

Before After

Developed countries 78 99

Developing countries 21 73

Transition economies 73 98


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Promoting fair competition

The WTO is sometimes described as a freetrade institution, but thatis not entirely accurate. The system does allow tariffs and, in limitedcircumstances, other forms of protection. More accurately, it is asystem of rules dedicated to open, fair and undistorted competition.

The rules on non-discrimination MFN and national treatment aredesigned to secure fair conditions of trade. So too are those ondumping (exporting at below cost to gain market share) and subsidies.

The issues are complex, and the rules try to establish what is fair orunfair, and how governments can respond, in particular by charging

additional import duties calculated to compensate for damage causedby unfair trade.


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Encouraging development and economicreform

It is widely recognized by economists and trade experts that the WTOsystem contributes to development.

It is also recognized that the least-developed countries need flexibilityin the time they take to implement the agreements.

And the agreements themselves inherit the earlier provisions ofGATT that allow for special assistance and trade concessions fordeveloping countries.


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GATT & WTO

The basic structure of the WTO agreements

Goods Services Intellectual property Disputes

Basic Principles GATT GATS TRIPS DisputeSettlement


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Benefits of the WTO trading system

1. The system helps promote peace

2. Disputes are handled constructively

3. Rules make life easier for all

4. Freer trade cuts the costs of living5. It provides more choice of products and qualities

6. Trade raises incomes

7. Trade stimulates economic growth

8. The basic principles make life more efficient

9. Governments are shielded from lobbying

10. The system encourages good government


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1. The system helps to keep the peace

Peace is partly an outcome of two of the most fundamental principlesof the trading system:

1.Helping trade to flow smoothly.

2.Dealing with disputes over trade issues. How does this work?

Crudely put, sales people are usually reluctant to fight their customers usually. In other words, if trade flows smoothly and both sides enjoya healthy commercial relationship, political conflict is less likely.

Whats more, smoothly-flowing trade also helps people all over theworld become better off. People who are more prosperous andcontented are also less likely to fight.


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2. The system allows disputes to behandled constructively

More trade means more possibilities for disputes to arise.

Left to themselves, those disputes could lead to serious conflict. But inreality, a lot of international trade tension is reduced because

countries can turn to organizations, in particular the WTO, to settletheir trade disputes.

Over 200 disputes have been brought to the WTO since it was set upin 1995. Without a means of tackling these constructively andharmoniously, some could have led to more serious political conflict.


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3. A system based on rules rather than

power makes life easier for all

The WTO cannot claim to make all countries equal.

But it does reduce some inequalities, giving smaller countries more

voice, and at the same time freeing the major powers from thecomplexity of having to negotiate trade agreements with each of theirnumerous trading partners.


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4. Freer trade cuts the cost of living

We are all consumers. The prices we pay for our food and clothing,our necessities and luxuries, and everything else in between, areaffected by trade policies.

According to one calculation, consumers and governments in richcountries pay $350 billion per year supporting agriculture enoughto fly their 41 million dairy cows first class around the world one and ahalf times


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5. It gives consumers more choice, and abroader range of qualities to choose from

Think of all the things we can now have because we can importthem: fruits and vegetables out of season, foods, clothing and other

products that used to be considered exotic, cut flowers from anypart of the world, all sorts of household goods, books, music,movies, and so on.

Life with ...... and without imports; South KoreaGhana Example


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6. Trade raises incomes

Lowering trade barriers allows trade to increase, which adds toincomes national incomes and personal incomes. But someadjustment is necessary.

The fact that there is additional income means that resources areavailable for governments to redistribute. The WTOs own estimates

for the impact of the 1994 Uruguay Round trade deal were between$109 billion and $510 billion added to world income (depending on theassumptions of the calculations and allowing for margins of error).

More recent research has produced similar figures. Economistsestimate that cutting trade barriers in agriculture, manufacturing and

services by one third would boost the world economy by $613 billion equivalent to adding an economy the size of Canada to the worldeconomy.

In Europe, the EU Commission calculates that over 198993 EUincomes increased by 1.11.5% more than they would have done

without the Single Market. So trade clearly boosts incomes.


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7. Trade stimulates economic growth, andthat can be good news for employment

Trade clearly has the potential to create jobs.

In practice there is often factual evidence that lower trade barriers have

been good for employment.But the picture is complicated by a number offactors. Nevertheless, thealternative protectionism is not the way to tackle employmentproblems.


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8. The basic principles make the systemeconomically more efficient, and they cut costs

Many of the benefits of the trading system are more difficult tosummarize in numbers, but they are still important.

They are the result of essential principles at the heart of the system, and

they make life simpler for the enterprises directly involved in trade andfor the producers of goods and services.


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9. The system shields governments fromnarrow interests

The GATT-WTO system which evolved in the second half of the 20thCentury helps governments take a more balanced view of trade policy.

Governments are better-placed to defend themselves against lobbying

from narrow interest groups by focusing on trade-offs that are made inthe interests of everyone in the economy. Governments are betterplaced to ward off powerful lobbies

Superficially, restricting imports looks like an effective way of supportingan economic sector. But it biases the economy against other sectors

which shouldnt be penalized if you protect your clothing industry,everyone else has to pay for more expensive clothes, which putspressure on wages in all sectors, for example.


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10. The system encourages good government

Under WTO rules, once a commitment has been made to liberalize asector of trade, it is difficult to reverse. The rules also discourage arange of unwise policies.

For businesses, that means greater certainty and clarity about tradingconditions.

For governments it can often mean good discipline. The rules reduceopportunities for corruption

The rules include commitments not to backslide into unwise policies.

Protectionism in general is unwise because of the damage it causesdomestically and internationally, as we have already seen. Particulartypes of trade barriers cause additional damage because they provideopportunities for corruption and other forms of bad government.


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Common Misunderstandings About TheWTO

1. The WTO dictates policy

2. The WTO is for free trade at any cost

3. Commercial interests take priority over development

4. Over the environment

5. Over health and safety

6. The WTO destroys jobs, worsens poverty

7. Small countries are powerless in the WTO

8. The WTO is the tool of powerful lobbies

9. Weaker countries are forced to join the WTO

10. The WTO is undemocratic


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1. WTO dictates?

The WTO does not tell governments how to conduct their tradepolicies. Rather, its a member-driven organization. The WTO ismember-driven, That means:

The rules of the WTO system are agreements resulting fromnegotiations among member governments,

The rules are ratified by members parliaments, and

Decisions taken in the WTO are virtually all made by consensusamong all members.

As for the WTO Secretariat, it simply provides administrative and

technical support for the WTO and its members. In fact: its the governments who dictate to the WTO.


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2. Blindly For Trade? The WTO is NOTfor free trade at any cost

Its really a question of what countries are willing to bargain with eachother, of give and take, request and offer.

It all depends on what countries want to bargain.

Yes, one of the principles of the WTO system is for countries to lower

their trade barriers and to allow trade to flow more freely. After all,countries benefit from the increased trade that results from lower tradebarriers.

But just how low those barriers should go is something member countriesbargain with each other.

Their negotiating positions depend on how ready they feel they are tolower the barriers, and on what they want to obtain from other membersin return.

One countrys commitments become another countrys rights, and viceversa.


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3. Ignores Development?

The WTO is NOT only concerned about commercial interests. Thisdoes NOT take priority over development -The WTO agreements arefull of provisions taking the interests of development into account,Sustainable development is a principal objective

Underlying the WTOs trading system is the fact that freer tradeboosts economic growth and supports development. In that sense,commerce and development are good for each other.


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4. Anti-Green?

Many provisions take environmental concerns specifically into account.

The preamble of the Marrakesh Agreement Establishing the WorldTrade Organization includes among its objectives:

Optimal use of the worlds resources,

Sustainable development and environmental protection.

This is backed up in concrete terms by a range of provisions in theWTOs rules.

Among the most important are umbrella clauses which allow countriesto take actions to protect human, animal or plant life or health, and to

conserve exhaustible natural resources.In the WTO, commercial interests DO NOT take priority overenvironmental protection.


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5. Anti-Health?

The WTO does NOT dictate to governments on issues such as foodsafety, and human health and safety.

Again commercial interests do NOT override, The agreements werenegotiated by WTO member governments, and therefore theagreements reflect their concerns.

Safety concerns are built into the WTO agreements


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6. Wrecks Jobs?

The WTO does NOT destroy jobs or widen the gap between rich andpoor-The accusation is inaccurate and simplistic.

Trade can be a powerful force for creating jobs and reducing poverty.Often it does just that. Sometimes adjustments are necessary to deal

with job losses, and here the picture is complicated.In any case, the alternative of protectionism is not the solution. Someadapt quickly (for example by finding new employment), others takelonger.


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7. Small left out?

Small countries would be weaker without the WTO. The WTOincreases their bargaining power.

Small countries are NOT powerless in the WTO.


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8. Tool Of Lobbies?

The WTO system offers governments a means to reduce the influenceof narrow vested interests.

The WTO is NOT the tool of powerful lobbies.Governments can use the WTO to resist lobbying. This is a naturalresult of the rounds type of negotiation (i.e. negotiations thatencompass a broad range of sectors).


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9. Weak Forced to join?

Weaker countries do have a choice, they are NOT forced to join theWTO, Most countries do feel that its better to be in the WTO systemthan to be outside it.

Thats why the list of countries negotiating membership includes bothlarge and small trading nations


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10. Undemocratic?

Decisions in the WTO are generally by consensus.

In principle, thats even more democratic than majority rule because

no decision is taken until everyone agrees.

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