1. 1International Business Rakesh Mohan Joshi Professor & Chairperson, IIFT New DelhiCopyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization

2. Chapter 5WORLD TRADE ORGANIZATIONCopyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 3. Learning Objectives To elucidate the significance of WTO and its genesisTo briefly explain the functions and structure of WTOTo describe the principles of multilateral trading system under WTOTo provide an overview of WTO agreementsTo explicate the dispute settlement system under WTOTo discuss the ministerial conferences and emerging issuesTo evaluate the WTO system in context of developing countriesCopyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 4. Significance of WTO The World Trade Organization (WTO) is the only international organization that deals with global rules of trade between nations. It provides a framework for conduct of international trade in goods and services. It lays down the rights and obligations of governments in the set of multilateral agreements. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 5. WTO vs. GATT GATT remained aprovisional agreement and organizationwhereas WTO commitments are permanent. GATT rules mainly applied to trade in goods whereas the WTO covers other areas, such as services, intellectual property, etc.GATT had contracting parties whereas the WTO has members.GATT was essentially a set of rules of the multilateral treaty with no institutional foundation whereas the WTO is a permanent institution with its own Secretariat.Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 6. A country could essentially follow domestic legislation even if it violated a provision of the GATT agreement which is not allowed by the WTO.In WTO, almost all the agreements are multilateral in nature involving commitment of the entire membership whereas a number of GATT provisions were plurilateral and therefore selective.The WTO also covers certain grey areas, such as agriculture, textiles and clothing, not covered under the GATT.The dispute settlement system under the WTO is much more efficient, speedy, and transparent unlike the GATT system which was highly susceptible to blockages.Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 7. Functions of WTO To facilitate the implementation, administration, and operation of trade agreements To provide a forum for further negotiations among member countries Settlement of differences and disputes among its member countries To carry out periodic reviews of the trade policies of its member countries To assist developing countries in trade policy issues, through technical assistance and training programs To cooperate with other international organizationsCopyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 8. Decision-making WTO is a member-driven consensus-based organization where all major decisions are made by its members as a whole. The WTOs agreements have been ratified in all members parliaments. Unlike other international organizations, such as the World Bank and the IMF, in WTO the power is not delegated to the board of directors or the organizations head. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 9. Organizational Structure of the WTO Highest authority: The Ministerial ConferenceSecond level: General CouncilThird level: Councils for each broad area of tradeFourth levelCopyright @ Oxford University Press International Business R. M. Joshi: Subsidiary bodiesChapter 5: World Trade Organization 10. Principles of the Multilateral Trading System under the WTO Trade without discriminationGradual move towards freer markets through negotiationsIncreased predictability of international business environmentPromoting fair competitionCopyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 11. WTO AGREEMENTS: AN OVERVIEW An umbrella agreement establishing WTOAgreements for each of the three broad areas of trade covered by WTO Goods Services Intellectual PropertyDispute settlementReviews of governments trade policiesCopyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 12. General Agreement on Tariffs and Trade (GATT) Opening up of the industrial sector Reduction in tariffsTariff bindingsCopyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 13. Creating Fairer Markets in Agriculture Sector Although earlier rules of GATT did apply to agriculture trade they contained loopholes. As a result, international trade in agriculture 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 agriculture sector. The objective of the agreement on agriculture was to reform trade in agriculture and to make policies more market oriented. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 14. Elimination of Non-tariff Measures through the Tariffication Process Subsequent to the Uruguay Round, quotas and other types of trade restrictive measures were to be replaced by tariffs that provide more or less equivalent levels of protection. This process of converting quotas and other types of non-tariff measures to tariffs that represent about the same level of protection, is termed tariffication. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 15. Binding Against Further Increase of Tariffs In addition to elimination of all non-tariff measures by tariffication, all countries have bound all tariffs applicable to agricultural products. In most cases, developing countries have given binding at rates that are higher than their current applied or reduced rates. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 16. Domestic Support Under the Agreement on Agriculture, domestic policies that have a direct effect on production and trade have to be cut back. The domestic support in the agriculture sector is categorized under Green, Amber, and Blue boxes. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 17. Green Box: All subsidies that have little or all most least trade distorting effects are exempted from commitments towards reduction.Amber Box: It is a maximum on the total domestic support that a government may provide to domestic producers.Blue Box: Certain categories of direct payment to farmers are also permitted where farmers are required to limit production. This also includes government assistance programmes to encourage agricultural and rural development in developing countriesCopyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 18. Export SubsidiesThe agreement on agriculture prohibits export subsidies on agricultural products unless the subsidies are specified in a members lists of commitments. Where they are listed, the agreement requires WTO members to cut both the amount of money they spend on export subsidies and the quantities of exports that receive subsidies. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 19. Standards and Safety Measures Article 20 of the GATT allows governments to act on trade in order to protect human, animal, or plant life or health, provided no discrimination is made and this is not used as disguised protectionism.Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 20. Agreement on Sanitary and Phytosanitary (SPS) Measures The SPS measures sets out the basic rules on food safety and plant health standards. This allows countries to set their own standards which have to be based on science and should not arbitrarily or unjustifiably discriminate between countries where identical or similar conditions prevail. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 21. Agreement on Technical Barriers to Trade (TBT)This agreement complements with SPS measures and attempts to ensure that regulations, standards, testing, and certification procedures do no create unnecessary obstacles to trade.Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 22. Opening Up International Business Opportunities in Textiles From 1974, until the end of the Uruguay Round, the international trade in textiles was governed by the Multi-fibre Arrangement (MFA).This was aframework for bilateral agreements or unilateral actions that established quotas limiting imports into countries whose domestic industries were facing serious damage from rapidly increasing imports. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 23. Post-MFN Textile and Clothing ScenarioOn full integration into GATT and final elimination of quotas, the Agreement on Textiles and Clothing ceased to exist on 1 January, 2005. This has opened immense opportunities and challenges for the developing countries.Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 24. General Agreement on Trade in Services (GATS) GATS is the first and the only set of multilateral rules governing international trade in services. Negotiated in the Uruguay Round, it was developed in response to the strong growth of the services economy and the greater potential for marketing services internationally. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 25. General Obligations and Disciplines Mode 1: Mode 2: Mode 3: Mode 4:Services supplied from one country to another. Consumers or firms making use of a service in another country A foreign company setting up subsidiaries or branches to provide services in another country, i.e. commercial presence Individuals travelling from their own country to supply services in another, i.e. presence of natural personsCopyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 26. Salient Features of GATS Most-favoured-nation (MFN) treatmentCommitments on market access and national treatmentTransparencyObjectivity and reasonability of regulationsRecognitionInternational payments and transfersProgressive liberalizationCopyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 27. Protection and Enforcement of IPRs The WTOs agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), introduced intellectual property rules in the multilateral trading system for the first time. TRIPS lays down minimum standards for the protection of IPRs as well as the procedures and remedies for their enforcement.It alsoestablishes a mechanism for consultations and surveillance at the international level to ensure compliance with these standards by member countries at the national level. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 28. Curbing Unfair Marketing Practices International market competitions get distorted mainly by unfair trade practices, as: If the exported goods benefit from the subsidiesIf exported goods are dumped in overseas marketsThe agreements on Anti-Dumping Practices (ADP) and on Subsidies and Countervailing Measures (SCM) authorize importing countries to levy compensatory duties on import of products. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 29. Dumping A product is considered to be dumped if The export price is less than the price charged for the same product in the exporting country, or it is sold for less than its cost of production andDumping is causing injury to domestic industry in the importing country.Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 30. Agreements on Anti-dumping Practices (ADP) The WTO agreement on anti-dumping allows governments to act against dumping where there is genuine (material) injury to the competing domestic industry.Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 31. The Agreement on Subsidies and Countervailing Measures (SCM) This agreement disciplines the use of subsidies and regulates the actions countries can take to counter the effects of subsidies by other countries. It can launch its own investigations and ultimately charge extra duty (known as countervailing duty) on subsidized imports that are found to be hurting domestic producers.Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 32. Category of Subsidies included under SCM Prohibited Subsidies: Those subsidies that require recipients to meet certain export targets, or to use domestic goods instead of imported goods. Actionable Subsidies: Subsidy has an adverse effect on its interest such as : Hurts domestic industry of importing country Hurts rival exporters from another country when the two compete in third market Hurt exporters trying to compete in the subsidized countrys domestic market. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 33. Emergency Protection from Imports A WTO member may restrict imports of a product temporarily (take safeguard actions) if its domestic industry is seriously injured or threatened with injury caused by a surge in imports.Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 34. Attempting to Reduce Non-Tariff Barriers Growing use of unconventional Non-Tariff Measures (NTMs), such as health and safety measures, technical regulations, environmental controls, customs valuation procedures, and labour laws by developed countries has become a major barrier to market access to exports from developing countries. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 35. Import Licensing Procedures The agreement attempts to simplify and bring transparency to import procedures. It requires governments to publish sufficient information for international traders to know how and why licences are granted. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 36. Customs Valuation The WTO agreement aims for a fair, uniform, and neutral system for the valuation of goods for customs purposesa system that conforms to commercial realities, and which outlaws the use of arbitrary or fictitious customs values.Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 37. Pre-shipment Inspection Thepre-shipmentinspectionagreementplacesobligations on governments that use pre-shipment inspection such as non-discrimination, transparency, protectionofconfidentialbusinessinformation,avoiding unreasonable delay, use of specific guidelines for conducting price verification, and avoiding conflicts of interest by the inspection agencies. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 38. Rules of Origin Rules of origin are used as the criteria to define where a productwas made. The Rules of Origin Agreement requires WTO members to ensure that their rules of origin are transparent; that they do not have restricting, distorting, or disruptive effects on international trade. The Rules are administered in a consistent, uniform, impartial, and reasonable manner. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 39. Agreement on Trade Related Investment Measures (TRIMs) The TRIMs stipulates that no member shall apply any measure that discriminates against foreigners or foreign products. It also outlaws investment measures that lead to restrictions in quantities and measures requiring particular levels of local procurement (local content requirements) by an enterprise. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 40. Plurilaterals AgreementsFair trade in civil aircraftOpening up of competition in government procurementCopyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 41. Ensuring Transparency in Trade Policy WTOs Trade Policy Review Mechanism (TPRM) aims to achieve transparency in regulations in the following ways: Governments have to inform the WTO and fellowmembers of specific measures, policies, or laws through regular notifications.The WTO conducts regular reviews of individual countries trade policies.Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 42. Settlement of International Trade Disputes Dispute settlement is the WTOs unique contribution which provides effectiveness to the rule based multilateral trading system. The WTOs procedure for settling disputes makes the trading system more secure and predictable. Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 43. Dispute Settlement Process Time Taken 60 days 45 days 6 months 3 weeks 60 days Total 6090 days 30 days Total Copyright @ Oxford University Press International Business R. M. JoshiStages Consultations, mediation, etc. Panel set up and panellists appointed Final panel report to parties Final panel report to WTO members Dispute Settlement Body adopts report (if no appeal) One Year (without appeal) Appeal report Dispute Settlement Body adopts appeals report One year 3 months (with appeal) Chapter 5: World Trade Organization 44. Ministerial Conferences Singapore Ministerial Conference (913 December, 1996)Geneva Ministerial Conference (1820 May, 1998)Seattle Ministerial Conference (30 November - 03 December, 1999Doha Ministerial Conference ( 914 November, 2001)Cancun Ministerial Conference (1014 September 2003)The Hong Kong Ministerial Conference (1318 December, 2005)Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 45. The Deadlock in WTO Negotiations Doha work programme were suspended in July, 2006. mainly due to lack of consensus between developing and developed countries, and the complexity of issues involved multilateral negotiations other get stalled.Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization 46. GATT/WTO System and Developing Countries Although developing countries form a much bigger group numerically under the WTO, decision-making is significantly influenced by the developed countries. Therefore over the years, the divide between the developed and developing countries in the WTO has widened, leading to deadlocks in the process of multilateral negotiations.Copyright @ Oxford University Press International Business R. M. JoshiChapter 5: World Trade Organization