An Introduction to the WTO

A. What is the WTO?

The World Trade Organisation (WTO) Established on 1st January 1995 As a result of the Uruguay Round negotiations (1986-1994) Located in Geneva, Switzerland Members: 149 countries (as of 11 Dec. 2005)

At its simplest:“A global organisation dealing with rules of trade between nations”.

(source: WTO)

Evolution of the WTO

Predecessor of the WTO – The GATT ‘47 The General Agreement on Tariffs and Trade (GATT) 1947 -the first

major effort to establish international rules governing trade in goods. Though initially conceived as a provisional legal instrument, it endured for almost 50 years.

It functioned without a formal organisational framework to oversee its implementation as the proposed International Trade Organisation (ITO) never came into being and the ITO Charter (aka the Havana Charter) of which GATT was only to be a part, never came into effect.

GATT’s primary focus was the reciprocal reduction of tariffs which later expanded to other trade related areas. In the years leading up to the Uruguay Round, GATT expanded its competence through several rounds of trade negotiations which witnessed the formulation of complex legal instruments on specific aspects of trade, particularly disciplines on the use of non tariff barriers.

The Uruguay Round (1986-1994)

The results of the Uruguay Round (UR) were signed in Marrakech, Morocco on 15 April 1994 .The WTO came into being on 1 January 1995 by virtue of the Agreement establishing the WTO.

The scope of the multilateral trading system was broadened from trade in goods (GATT) to encompass trade in services (GATS) and trade related aspects of intellectual property rights (TRIPS). It was a rule-based global trading system complete with its own dispute resolution procedures .

The “Single Undertaking” conceptThe multilateral trade agreements under the WTO system are treated as a single undertaking which means that every member state of the WTO is a party to every one of these agreements and must implement them accordingly.

The WTO’s functions

Administers the WTO Agreements and facilitates their operation and implementation

Provides a forum for trade negotiations among member states on matters covered by the Agreements and for further liberalisation of trade amongst members

Responsible for the settlement of differences and disputes between members

Responsible for periodic reviews of the trade policies of members

Also provides technical assistance and training for developing countries

Cooperates with other international organisations on subjects of mutual interest

Principles of the world trading system under the WTO

Non discrimination- Most Favoured Nation (MFN) and National Treatment obligations

Freer trade – negotiations aimed at lowering trade barriers Predictability and transparency - binding commitments,

restrictions on the use of barriers to trade and transparent trade policies and regulatory frameworks (e.g. transparency obligations in the major trade agreements and the Trade Policy Review Mechanism)

The promotion of fair competition- MFN, national treatment and rules against unfair trade practices (e.g. anti dumping)

Encouragement of development and economic reform

Organisational structure of the WTO

Ministerial Conference- The apex body for decision making (meets every 2 years). Composition:-ministerial representatives.

General Council- performs the functions of the Conference between meetings and has specific duties assigned to it by the WTO agreements. Composition:- governmental representatives.

The General Council also meets as the Dispute Settlement Body and the Trade Policy Review Body.

Councils for Trade in Goods (oversees GATT), Trade in Services (oversees GATS) and TRIPS which report to and assist the General Council.

Committees on special subjects, Committees functioning under the Councils and Committees for the Plurilateral Agreements.

Membership- developed, developing, least developed countries andeconomies in transition.Decision making is by consensus. If consensus is not possible decisionswill be taken by a majority vote.

(Refer hand out for details)

The Uruguay Round agreements

The Agreement establishing the WTOIts Annexes

Annex 1A - GATT 1994 , related agreements (e.g. Agreements on Agriculture, Subsidies etc.) and texts1B- General Agreement on Trade in Services (GATS) and Annexes1C- Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)

Annex 2 Understanding on the Rules and Procedures Governing the Settlement of Disputes (aka Dispute Settlement Understanding /DSU)

Annex 3 Trade Policy Review Mechanism Annex 4 Plurilateral Agreements (e.g. Agreement on Trade in Civil

Aircraft)

Four main principles of GATT

Most Favoured Nation – Art. 1 of GATT embodies the MFN rule. At its simplest, it requires any favourable treatment granted to a product originating in or destined for any other country, to be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other member states. E.g. Spanish coffee case: Spain applied a higher duty on the types of coffee imported from Brazil while applying a lower duty on other coffees considered to be ‘like products’. The Panel considered this to be a breach of its GATT MFN obligation.

There are permitted exceptions to the MFN rule: for e.g. free trade areas/customs unions and preferential systems.[The principle of MFN is also found in GATS(Art.2) and TRIPS (Art.4)]

Principles (Cont.)

National Treatment –The national treatment rule in Art. 3 of GATT provides that internal taxes, charges, laws and regulations must not be applied so as to afford protection to domestic production. The imported product must not be subject directly or indirectly to internal taxes in excess of those applied directly or indirectly to the like domestic product.

E.g. Japan- Alcoholic beverages case (1996)imported vodka (and other alcoholic beverages) vs. local shochu (a distilled white spirit) and excessive taxes on the former.[The national treatment principle is also found in GATS (Art.17) and TRIPS (Art.3).]

Principles (Cont.)

Tarrification - Protection of the domestic industry by tariffs only.- Reinforced through rules which prohibit use of quantitative restrictions (Art 11 GATT). Limited exceptions are allowed e.g. for BOP reasons (Art 12 GATT).

Tariff Concessions- negotiations shall be aimed at reducing tariffs (Preamble and Art. 28bis GATT). Tariffs shall also be bound against further increases [Art 2.1(b) GATT]. (Tariff concessions are recorded in schedules of concessions)

The WTO as a dispute settlement forum and a monitoring body

Settlement of disputes under the DSU1. Consultations, good offices, conciliation and mediation2. Panel proceedings3. Appellate Body 4. Consideration and adoption of Panel/AB reports by the DSB If the report concludes that a measure is inconsistent with a covered agreement the Panel (/AB) must recommend that the Member concerned bring the measure into conformity with that agreement.Adoption of Panel (/AB) reports by the DSB is automatic.5. Implementation of reports by members- Compliance- Negotiation of compensation (voluntary, mutually acceptable)- Authorisation of retaliatory action (suspension of concessions/obligations)

Trade Policy Review Mechanism- Periodic review of trade policies

Services and the WTO

The WTO regulates trade in services through the General Agreement on Trade in Services (GATS). The GATS is “broadly comparable” to the GATT but there are significant differences in its approach to liberalization.

Services cover a wide range of activities. Under the GATS, the term “services” include any service in any sector except services supplied in the exercise of governmental authority.

The GATS applies to all measures by Members affecting trade in services.

Measures can be laws, regulations, procedures, decisions, administrative action etc., of Member governments.

Cont.

Trade in services under the GATS is defined in terms of four modes of supply. They are :-(1) from the territory of one Member into the territory of any other Member (aka cross border supply of services/ Mode 1)(2) in the territory of one Member to the service consumer of any other Member (aka consumption abroad/ Mode 2)(3) by a service supplier of one Member, through commercial presence in the territory of any other Member; (aka commercial presence/ Mode 3)(4) by a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member (aka presence of natural persons/ Mode 4)

(Art.1 GATS)

GATS obligations

Two main categories of obligations General obligations which apply to all service sectors

of all Members.

Specific obligations which apply only to service sectors specified in the Member’s “Schedule of specific commitments”.

General Obligations

MFN (Art.2)“With respect to any measure covered by this Agreement, each Member

shall accord immediately and unconditionally to services and service

suppliers of any other Member treatment no less favorable than that it

accords to like services and service suppliers of any other country.”

Note qualifications to the MFN rule via Art. 2 exemptions and RTAs (Art.5)

Transparency (Art.3)Art. 3 is mainly concerned with the provision of information. The rule

requires the “prompt” publication of general measures, notification of

changes to/introduction of measures that affect sectors covered by

specific commitments to the Services Council. Also requires the

establishment of national enquiry points.

Specific obligations

Market Access Art. 16“With respect to market access through the modes of supply identified inArticle 1, each Member shall accord services and service suppliers of anyother Member treatment no less favorable than that provided for under theterms, limitations and conditions agreed and specified in its Schedule.”

Art. 16 contains a prohibition of a list of measures (mostly quantitative)which Members cannot maintain unless they specify them in theirSchedules as limitations on market access. These measures include: - limitations on the number of suppliers (e.g. quotas) - limitations on the quantity of service out put (e.g. limited broadcasting time for foreign films) - limitations on the participation of foreign capital or restrictions on the type of legal entity (e.g. joint venture)

Cont.

National Treatment Art. 17“In the sectors inscribed in its Schedule, and subject to any conditions andqualifications set out therein, each Member shall accord to services andservice suppliers of any other Member, in respect of all measuresaffecting the supply of services, treatment no less favorable than that itaccords to its own like services and service suppliers.”

Example : The availability of tax incentives only to companies controlledby nationals of the country in the retail services sector.

Art. 17 covers both de jure and de facto discrimination.

Cont.

Domestic regulations Art. 6Article 6 addresses domestic regulations as these may act as barriers totrade even if they are non-discriminatory. E.g. professional qualifications,licensing procedures and technical regulations.

Certain Art. 6 obligations apply only to service sectors in whichcommitments have been undertaken. They include:- obligations to ensure that general measures are administered in “a

reasonable, objective and impartial manner”.- obligations aimed at preventing licensing and qualification

requirements and technical standards from being unnecessary barriers to trade.

WTO: Benefits for business

Creation of a stable, rule based, multilateral trading regime Market access translates into market opportunities The rule based system creates certain rights of access

- Security of accesstariff bindings and disciplines on barriers to trade whether tariff or non tariff. It also provides non discriminatory treatment of products and services.- Stability of accessthe application of uniform rules in key areas of the trading process e.g. customs valuation, import licenses etc.- Rights against unfair trade practices for

– Domestic industry– Export industry– Import industry

Participating in the process

Why is it important? Improve market access through continuous lobbying through

chambers of commerce, trade/product/service organizations. Overcome problem areas in international trading e.g. technical

standards, high tariffs on processed goods. Expand or protect trading interests through support or

opposition of new subject areas in trade negotiations. Preserve or defend markets through their governments’ use of

the dispute resolution mechanism.

For further information

The WTO Website : www.wto.org

Some related websites of interest OECD www.oecd.org ITC www.intracen.org World Bank www.worldbank.org

Thank you