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FUNCTIONS

.1. The WTO facilitates the implementation, administration and operation,and furthers the objectives, of this Agreement and the Multilateral Trade

Agreements, and also provide framework for the implementation,

administration and operation of the Plurilateral Trade Agreements.

2. The WTO provides the forum for negotiations among its membersconcerning their multilateral trade relations in matters dealt with under theagreements and a framework for the implementation of the results of suchnegotiations, as may be decided by the Ministerial Conference.

3. The WTO administers the Understandings on Rules and Proceduresgoverning the Settlement of Disputes.

4. The WTO administers the Trade Policy Review Mechanism (TPRM).

5. With a view to achieving greater coherence in global economic policy-making, the WTO cooperates as appropriate, with the InternationalMonetary Fund (IMF) and with the International Bank for Reconstructionand Development (World Bank) and its affiliate agencies

Four Basic Rules

1. Protection to Domestic Industry ThroughTariffs:a. The General Agreement on Tariffs and Trade (GATT)covers international trade in goods. The workings of theGATT agreement are the responsibility of the Council forTrade in Goods (Goods Council) which is made up ofrepresentatives from all WTO member countries. GATTrequires the member countries to protect their domestic

industry/production through tariffs only.

b. It prohibits the use of quantitative restrictions, except ina limited number of situations.

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2. Binding of Tariffs: The member countries are urgedto

a. Eliminate protection to domestic industry/ production

by reducing tariffs and removing other barriers to trade inmultilateral trade negotiations.

b. The reduced tariffs are bound against further increasesby listing them in each country's national schedule.

c. The schedules are an integrated part of the GATT legalsystem.

3. Most Favoured-Nation(MFN) Treatment:a. The rule lays down the principles of non-discriminationamongst member countries.

b. Tariff and other regulations should be applied toimported or exported goods without discrimination amongcountries.

c. Exceptions to the rules i.e., regional arrangementssubjected to preferential or duty free trade agreements,Generalized System of Preferences (GSP) where developedcountries apply preferential or duty free rates to importsfrom developing countries.

4. National Treatment Rule:

The rule prohibits member countries from discriminatingbetween imported products and domestically producedlike goods in the matter of internal taxes and in theapplication of internal regulations.

Types of Letter of Credit

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1. Revocable Letter of Credit L/c

A revocable letter of credit may be revoked or modifiedfor any reason, at any time by the issuing bank without

notification. It is rarely used in international trade andnot considered satisfactory for the exporters but has anadvantage over that of the importers and the issuingbank.

There is no provision for confirming revocable credits asper terms of UCPDC, Hence they cannot be confirmed. It

should be indicated in LC that the credit is revocable. ifthere is no such indication the credit will be deemed asirrevocable.

2. Irrevocable Letter of CreditL/c

In this case it is not possible to revoked or amended acredit without the agreement of the issuing bank, the

confirming bank, and the beneficiary. Form an exporterspoint of view it is believed to be more beneficial. Anirrevocable letter of credit from the issuing bank insuresthe beneficiary that if the required documents arepresented and the terms and conditions are compliedwith, payment will be made.

3. Confirmed Letter of Credit L/c

Confirmed Letter of Credit is a special type of L/c inwhich another bank apart from the issuing bank hasadded its guarantee. Although, the cost of confirming bytwo banks makes it costlier, this type of L/c is more

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beneficial for the beneficiary as it doubles theguarantee.

4. Sight Credit and Usance Credit L/c

Sight credit states that the payments would be made bythe issuing bank at sight, on demand or on presentation.In case of usance credit, draft are drawn on the issuingbank or the correspondent bank at specified usanceperiod. The credit will indicate whether the usance draftare to be drawn on the issuing bank or in the case of

confirmed credit on the confirming bank.5. Back to Back Letter of Credit L/c

Back to Back Letter of Credit is also termed asCountervailing Credit. A credit is known as backtobackcredit when a L/c is opened with security of another L/c.

A backtoback credit which can also be referred as creditand countercredit is actually a method of financing bothsides of a transaction in which a middleman buys goodsfrom one customer and sells them to another.

The parties to a BacktoBack Letter of Credit are:1. The buyer and his bank as the issuer of the original

Letter of Credit.

2. The seller/manufacturer and his bank,3. The manufacturer's subcontractor and his bank.

The practical use of this Credit is seen when L/c isopened by the ultimate buyer in favour of a particularbeneficiary, who may not be the actual supplier/

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manufacturer offering the main credit with nearidentical terms in favour as security and will be able toobtain reimbursement by presenting the documents

received under back to back credit under the main L/c.

The need for such credits arise mainly when :

1.The ultimate buyer not ready for a transferablecredit

2.The Beneficiary do not want to disclose the source ofsupply to the openers.

3.The manufacturer demands on payment againstdocuments for goods but the beneficiary of credit isshort of the funds

6. Transferable Letter of Credit L/c

A transferable documentary credit is a type of creditunder which the first beneficiary which is usually a

middleman may request the nominated bank to transfercredit in whole or in part to the second beneficiary.

The L/c does state clearly mentions the margins of thefirst beneficiary and unless it is specified the L/c cannotbe treated as transferable. It can only be used when thecompany is selling the product of a third party and the

proper care has to be taken about the exit policy for themoney transactions that take place.

This type of L/c is used in the companies that act as amiddle man during the transaction but dont have large

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limit. In the transferable L/c there is a right to substitutethe invoice and the whole value can be transferred to asecond beneficiary.

The first beneficiary or middleman has rights to changethe following terms and conditions of the letter of credit:

1.Reduce the amount of the credit.2.Reduce unit price if it is stated3.Make shorter the expiry date of the letter of credit.4.Make shorter the last date for presentation of

documents.5.Make shorter the period for shipment of goods.6.Increase the amount of the cover or percentage for

which insurance cover must be effected.7.Substitute the name of the applicant (the

middleman) for that of the first beneficiary (thebuyer).

The General Agreement on Tariffs and Trade (GATT), which was signed in 1947, is a multilateral

agreement regulating trade among 153 countries. According to its preamble, the purpose of the GATT

is the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a

reciprocal and mutually advantageous basis."

The GATT functioned de facto as an organization, conducting eight rounds of talks addressing various

trade issues and resolving international trade disputes. The Uruguay Round, which was completed on

December 15, 1993 after seven years of negotiations, resulted in an agreement among 117 countries

(including the U.S.) to reduce trade barriers and to create more comprehensive and enforceable world

trade rules. The agreement coming out of this round, the Final Act Embodying the Results of the

Uruguay Round of Multilateral Trade Negotiations, was signed in April 1994. The Uruguay Round

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agreement was approved and implemented by the U.S. Congress in December 1994, and went into

effect on January 1, 1995.