The World Trade Organization (WTO) is an organization that intends to supervise and

liberalize international trade. The organization officially commenced on 1 January 1995

under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade

(GATT), which commenced in 1948.The organization deals with regulation of trade

between participating countries; it provides a framework for negotiating and formalizing

trade agreements, and a dispute resolution process aimed at enforcing participant's

adherence to WTO agreements, which are signed by representatives of member

governments and ratified by their parliaments. Most of the issues that the WTO focuses

on derive from previous trade negotiations, especially from the Uruguay Round (1986–

1994).

The organization is attempting to complete negotiations on the Doha Development

Round, which was launched in 2001 with an explicit focus on addressing the needs of

developing countries. As of June 2012, the future of the Doha Round remained uncertain:

the work programme lists 21 subjects in which the original deadline of 1 January 2005

was missed, and the round is still incomplete.The conflict between free trade on industrial

goods and services but retention of protectionism on farm subsidies to domestic

agricultural sector (requested by developed countries) and the substantiation of the

international liberalization of fair trade on agricultural products (requested by developing

countries) remain the major obstacles. These points of contention have hindered any

progress to launch new WTO negotiations beyond the Doha Development Round. As a

result of this impasse, there has been an increasing number of bilateral free trade

agreements signed.As of July 2012, there were various negotiation groups in the WTO

system for the current agricultural trade negotiation which is in the condition of

stalemate.

WTO's current Director-General is Roberto Azevêdo, who leads a staff of over 600

people in Geneva, Switzerland.

History

The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was

established after World War II in the wake of other new multilateral institutions

dedicated to international economic cooperation – notably the Bretton Woods institutions

known as the World Bank and the International Monetary Fund. A comparable

international institution for trade, named the International Trade Organization was

successfully negotiated. The ITO was to be a United Nations specialized agency and

would address not only trade barriers but other issues indirectly related to trade, including

employment, investment, restrictive business practices, and commodity agreements. But

the ITO treaty was not approved by the U.S. and a few other signatories and never went

into effect.

In the absence of an international organization for trade, the GATT would over the years

"transform itself" into a de facto international organization.

GATT rounds of negotiations

The GATT was the only multilateral instrument governing international trade from 1946

until the WTO was established on 1 January 1995. Despite attempts in the mid-1950s and

1960s to create some form of institutional mechanism for international trade, the GATT

continued to operate for almost half a century as a semi-institutionalized multilateral

treaty regime on a provisional basis.

From Geneva to Tokyo

Seven rounds of negotiations occurred under GATT. The first real GATT trade rounds

concentrated on further reducing tariffs. Then, the Kennedy Round in the mid-sixties

brought about a GATT anti-dumping Agreement and a section on development. The

Tokyo Round during the seventies was the first major attempt to tackle trade barriers that

do not take the form of tariffs, and to improve the system, adopting a series of agreements

on non-tariff barriers, which in some cases interpreted existing GATT rules, and in others

broke entirely new ground. Because these plurilateral agreements were not accepted by

the full GATT membership, they were often informally called "codes". Several of these

codes were amended in the Uruguay Round, and turned into multilateral commitments

accepted by all WTO members. Only four remained plurilateral (those on government

procurement, bovine meat, civil aircraft and dairy products), but in 1997 WTO members

agreed to terminate the bovine meat and dairy agreements, leaving only two.

Uruguay Round

Well before GATT's 40th anniversary, its members concluded that the GATT system was

straining to adapt to a new globalizing world economy. In response to the problems

identified in the 1982 Ministerial Declaration (structural deficiencies, spill-over impacts

of certain countries' policies on world trade GATT could not manage etc.), the eighth

GATT round – known as the Uruguay Round – was launched in September 1986, in

Punta del Este, Uruguay.

It was the biggest negotiating mandate on trade ever agreed: the talks were going to

extend the trading system into several new areas, notably trade in services and intellectual

property, and to reform trade in the sensitive sectors of agriculture and textiles; all the

original GATT articles were up for review. The Final Act concluding the Uruguay Round

and officially establishing the WTO regime was signed 15 April 1994, during the

ministerial meeting at Marrakesh, Morocco, and hence is known as the Marrakesh

Agreement.

The GATT still exists as the WTO's umbrella treaty for trade in goods, updated as a result

of the Uruguay Round negotiations (a distinction is made between GATT 1994, the

updated parts of GATT, and GATT 1947, the original agreement which is still the heart

of GATT 1994). GATT 1994 is not however the only legally binding agreement included

via the Final Act at Marrakesh; a long list of about 60 agreements, annexes, decisions and

understandings was adopted. The agreements fall into a structure with six main parts:

• The Agreement Establishing the WTO

• Goods and investment – the Multilateral Agreements on Trade in Goods including the

GATT 1994 and the Trade Related Investment Measures (TRIMS)

• Services — the General Agreement on Trade in Services

• Intellectual property – the Agreement on Trade-Related Aspects of Intellectual

Property Rights (TRIPS)

• Dispute settlement (DSU)

• Reviews of governments' trade policies (TPRM)[26]

In terms of the WTO's principle relating to tariff "ceiling-binding" (No. 3), the Uruguay

Round has been successful in increasing binding commitments by both developed and

developing countries, as may be seen in the percentages of tariffs bound before and after

the 1986–1994 talks.

Ministerial conferences

The highest decision-making body of the WTO is the Ministerial Conference, which

usually meets every two years. It brings together all members of the WTO, all of which

are countries or customs unions. The Ministerial Conference can take decisions on all

matters under any of the multilateral trade agreements. The inaugural ministerial

conference was held in Singapore in 1996. Disagreements between largely developed and

developing economies emerged during this conference over four issues initiated by this

conference, which led to them being collectively referred to as the "Singapore issues".

The second ministerial conference was held in Geneva in Switzerland. The third

conference in Seattle, Washington ended in failure, with massive demonstrations and

police and National Guard crowd-control efforts drawing worldwide attention. The fourth

ministerial conference was held in Doha in the Persian Gulf nation of Qatar. The Doha

Development Round was launched at the conference. The conference also approved the

joining of China, which became the 143rd member to join. The fifth ministerial

conference was held in Cancún, Mexico, aiming at forging agreement on the Doha round.

An alliance of 22 southern states, the G20 developing nations (led by India, China,

Brazil, ASEAN led by the Philippines), resisted demands from the North for agreements

on the so-called "Singapore issues" and called for an end to agricultural subsidies within

the EU and the US. The talks broke down without progress.

The sixth WTO ministerial conference was held in Hong Kong from 13–18 December

2005. It was considered vital if the four-year-old Doha Development Round negotiations

were to move forward sufficiently to conclude the round in 2006. In this meeting,

countries agreed to phase out all their agricultural export subsidies by the end of 2013,

and terminate any cotton export subsidies by the end of 2006. Further concessions to

developing countries included an agreement to introduce duty free, tariff free access for

goods from the Least Developed Countries, following the Everything but Arms initiative

of the European Union — but with up to 3% of tariff lines exempted. Other major issues

were left for further negotiation to be completed by the end of 2010. The WTO General

Council, on 26 May 2009, agreed to hold a seventh WTO ministerial conference session

in Geneva from 30 November-3 December 2009. A statement by chairman Amb. Mario

Matus acknowledged that the prime purpose was to remedy a breach of protocol

requiring two-yearly "regular" meetings, which had lapsed with the Doha Round failure

in 2005, and that the "scaled-down" meeting would not be a negotiating session, but

"emphasis will be on transparency and open discussion rather than on small group

processes and informal negotiating structures". The general theme for discussion was

"The WTO, the Multilateral Trading System and the Current Global Economic

Environment"

Doha Round (Doha Agenda)

The WTO launched the current round of negotiations, the Doha Development Round, at

the fourth ministerial conference in Doha, Qatar in November 2001. This was to be an

ambitious effort to make globalization more inclusive and help the world's poor,

particularly by slashing barriers and subsidies in farming. The initial agenda comprised

both further trade liberalization and new rule-making, underpinned by commitments to

strengthen substantial assistance to developing countries.

The negotiations have been highly contentious. Disagreements still continue over several

key areas including agriculture subsidies, which emerged as critical in July 2006.

According to a European Union statement, "The 2008 Ministerial meeting broke down

over a disagreement between exporters of agricultural bulk commodities and countries

with large numbers of subsistence farmers on the precise terms of a 'special safeguard

measure' to protect farmers from surges in imports." The position of the European

Commission is that "The successful conclusion of the Doha negotiations would confirm

the central role of multilateral liberalisation and rule-making. It would confirm the WTO

as a powerful shield against protectionist backsliding." An impasse remains and, as of

August 2013, agreement has not been reached, despite intense negotiations at several

ministerial conferences and at other sessions. On 27 March 2013, the chairman of

agriculture talks announced "a proposal to loosen price support disciplines for developing

countries’ public stocks and domestic food aid." He added: “...we are not yet close to

agreement—in fact, the substantive discussion of the proposal is only beginning.”

GATT and WTO trade rounds

Functions

Among the various functions of the WTO, these are regarded by analysts as the most

important:

• It oversees the implementation, administration and operation of the covered

agreements.

• It provides a forum for negotiations and for settling disputes.

Additionally, it is the WTO's duty to review and propagate the national trade policies,

and to ensure the coherence and transparency of trade policies through surveillance in

global economic policy-making. Another priority of the WTO is the assistance of

developing, least-developed and low-income countries in transition to adjust to WTO

rules and disciplines through technical cooperation and training.

The WTO is also a center of economic research and analysis: regular assessments of the

global trade picture in its annual publications and research reports on specific topics are

produced by the organization. Finally, the WTO cooperates closely with the two other

components of the Bretton Woods system, the IMF and the World Bank.

Principles of the trading system

The WTO establishes a framework for trade policies; it does not define or specify

outcomes. That is, it is concerned with setting the rules of the trade policy games.Five

principles are of particular importance in understanding both the pre-1994 GATT and the

WTO:

1. Non-discrimination. It has two major components: the most favoured nation (MFN)

rule, and the national treatment policy. Both are embedded in the main WTO rules

on goods, services, and intellectual property, but their precise scope and nature

differ across these areas. The MFN rule requires that a WTO member must apply

the same conditions on all trade with other WTO members, i.e. a WTO member

has to grant the most favorable conditions under which it allows trade in a certain

product type to all other WTO members. "Grant someone a special favour and

you have to do the same for all other WTO members." National treatment means

that imported goods should be treated no less favorably than domestically

produced goods (at least after the foreign goods have entered the market) and was

introduced to tackle non-tariff barriers to trade (e.g. technical standards, security

standards et al. discriminating against imported goods).

2. Reciprocity. It reflects both a desire to limit the scope of free-riding that may arise

because of the MFN rule, and a desire to obtain better access to foreign markets.

A related point is that for a nation to negotiate, it is necessary that the gain from

doing so be greater than the gain available from unilateral liberalization;

reciprocal concessions intend to ensure that such gains will materialise.

3. Binding and enforceable commitments. The tariff commitments made by WTO

members in a multilateral trade negotiation and on accession are enumerated in a

schedule (list) of concessions. These schedules establish "ceiling bindings": a

country can change its bindings, but only after negotiating with its trading

partners, which could mean compensating them for loss of trade. If satisfaction is

not obtained, the complaining country may invoke the WTO dispute settlement

procedures.

4. Transparency. The WTO members are required to publish their trade regulations, to

maintain institutions allowing for the review of administrative decisions affecting

trade, to respond to requests for information by other members, and to notify

changes in trade policies to the WTO. These internal transparency requirements

are supplemented and facilitated by periodic country-specific reports (trade policy

reviews) through the Trade Policy Review Mechanism (TPRM). The WTO

system tries also to improve predictability and stability, discouraging the use of

quotas and other measures used to set limits on quantities of imports.

5. Safety valves. In specific circumstances, governments are able to restrict trade. The

WTO's agreements permit members to take measures to protect not only the

environment but also public health, animal health and plant health.

There are three types of provision in this direction:

• articles allowing for the use of trade measures to attain non-economic objectives;

• articles aimed at ensuring "fair competition"; members must not use environmental

protection measures as a means of disguising protectionist policies.

• provisions permitting intervention in trade for economic reasons.

Exceptions to the MFN principle also allow for preferential treatment of developing

countries, regional free trade areas and customs unions.

Organizational structure

The General Council has the following subsidiary bodies which oversee committees in

different areas:

Council for Trade in Goods

There are 11 committees under the jurisdiction of the Goods Council each with a specific

task. All members of the WTO participate in the committees. The Textiles Monitoring

Body is separate from the other committees but still under the jurisdiction of Goods

Council. The body has its own chairman and only 10 members. The body also has several

groups relating to textiles.

Council for Trade-Related Aspects of Intellectual Property Rights

Information on intellectual property in the WTO, news and official records of the

activities of the TRIPS Council, and details of the WTO's work with other international

organizations in the field.

Council for Trade in Services

The Council for Trade in Services operates under the guidance of the General Council

and is responsible for overseeing the functioning of the General Agreement on Trade in

Services (GATS). It is open to all WTO members, and can create subsidiary bodies as

required.

Trade Negotiations Committee

The Trade Negotiations Committee (TNC) is the committee that deals with the current

trade talks round. The chair is WTO's director-general. As of June 2012 the committee

was tasked with the Doha Development Round.

The Service Council has three subsidiary bodies: financial services, domestic regulations,

GATS rules and specific commitments. The General council has several different

committees, working groups, and working parties. There are committees on the

following: Trade and Environment; Trade and Development (Subcommittee on Least-

Developed Countries); Regional Trade Agreements; Balance of Payments Restrictions;

and Budget, Finance and Administration. There are working parties on the following:

Accession. There are working groups on the following: Trade, debt and finance; and

Trade and technology transfer.

Decision-making

The WTO describes itself as "a rules-based, member-driven organization — all decisions

are made by the member governments, and the rules are the outcome of negotiations

among members". The WTO Agreement foresees votes where consensus cannot be

reached, but the practice of consensus dominates the process of decision-making.

Richard Harold Steinberg (2002) argues that although the WTO's consensus governance

model provides law-based initial bargaining, trading rounds close through power-based

bargaining favouring Europe and the U.S., and may not lead to Pareto improvement.

Dispute settlement

Main article: Dispute settlement in the WTO

In 1994, the WTO members agreed on the Understanding on Rules and Procedures

Governing the Settlement of Disputes (DSU) annexed to the "Final Act" signed in

Marrakesh in 1994. Dispute settlement is regarded by the WTO as the central pillar of the

multilateral trading system, and as a "unique contribution to the stability of the global

economy". WTO members have agreed that, if they believe fellow-members are violating

trade rules, they will use the multilateral system of settling disputes instead of taking

action unilaterally.

The operation of the WTO dispute settlement process involves the DSB panels, the

Appellate Body, the WTO Secretariat, arbitrators, independent experts and several

specialized institutions. Bodies involved in the dispute settlement process, World Trade

Organization.

Accession and membership

Main article: World Trade Organization accession and membership

The process of becoming a WTO member is unique to each applicant country, and the

terms of accession are dependent upon the country's stage of economic development and

current trade regime. The process takes about five years, on average, but it can last more

if the country is less than fully committed to the process or if political issues interfere.

The shortest accession negotiation was that of the Kyrgyz Republic, while the longest

was that of Russia, which, having first applied to join GATT in 1993, was approved for

membership in December 2011 and became a WTO member on 22 August 2012. The

second longest was that of Vanuatu, whose Working Party on the Accession of Vanuatu

was established on 11 July 1995. After a final meeting of the Working Party in October

2001, Vanuatu requested more time to consider its accession terms. In 2008, it indicated

its interest to resume and conclude its WTO accession. The Working Party on the

Accession of Vanuatu was reconvened informally on 4 April 2011 to discuss Vanuatu's

future WTO membership. The re-convened Working Party completed its mandate on 2

May 2011. The General Council formally approved the Accession Package of Vanuatu

on 26 October 2011. On 24 August 2012, the WTO welcomed Vanuatu as its 157th

member. An offer of accession is only given once consensus is reached among interested

parties.

Accession process

A country wishing to accede to the WTO submits an application to the General Council,

and has to describe all aspects of its trade and economic policies that have a bearing on

WTO agreements. The application is submitted to the WTO in a memorandum which is

examined by a working party open to all interested WTO Members.

After all necessary background information has been acquired, the working party focuses

on issues of discrepancy between the WTO rules and the applicant's international and

domestic trade policies and laws. The working party determines the terms and conditions

of entry into the WTO for the applicant nation, and may consider transitional periods to

allow countries some leeway in complying with the WTO rules.

The final phase of accession involves bilateral negotiations between the applicant nation

and other working party members regarding the concessions and commitments on tariff

levels and market access for goods and services. The new member's commitments are to

apply equally to all WTO members under normal non-discrimination rules, even though

they are negotiated bilaterally.

When the bilateral talks conclude, the working party sends to the general council or

ministerial conference an accession package, which includes a summary of all the

working party meetings, the Protocol of Accession (a draft membership treaty), and lists

("schedules") of the member-to-be's commitments. Once the general council or

ministerial conference approves of the terms of accession, the applicant's parliament must

ratify the Protocol of Accession before it can become a member.

Members and observers

The WTO has 159 members and 25 observer governments. In addition to states, the

European Union is a member. WTO members do not have to be full sovereign nation-

members. Instead, they must be a customs territory with full autonomy in the conduct of

their external commercial relations. Thus Hong Kong has been a member since 1995 (as

"Hong Kong, China" since 1997) predating the People's Republic of China, which joined

in 2001 after 15 years of negotiations. The Republic of China (Taiwan) acceded to the

WTO in 2002 as "Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu"

(Chinese Taipei) despite its disputed status. The WTO Secretariat omits the official titles

(such as Counselor, First Secretary, Second Secretary and Third Secretary) of the

members of Chinese Taipei's Permanent Mission to the WTO, except for the titles of the

Permanent Representative and the Deputy Permanent Representative.

Iran is the biggest economy outside the WTO. With the exception of the Holy See,

observers must start accession negotiations within five years of becoming observers. A

number of international intergovernmental organizations have also been granted observer

status to WTO bodies. 14 states and two territories so far have no official interaction with

the WTO.

Agreements

The WTO oversees about 60 different agreements which have the status of international

legal texts. Member countries must sign and ratify all WTO agreements on accession.A

discussion of some of the most important agreements follows. The Agreement on

Agriculture came into effect with the establishment of the WTO at the beginning of 1995.

The AoA has three central concepts, or "pillars": domestic support, market access and

export subsidies. The General Agreement on Trade in Services was created to extend the

multilateral trading system to service sector, in the same way as the General Agreement

on Tariffs and Trade (GATT) provided such a system for merchandise trade. The

agreement entered into force in January 1995. The Agreement on Trade-Related Aspects

of Intellectual Property Rights sets down minimum standards for many forms of

intellectual property (IP) regulation. It was negotiated at the end of the Uruguay Round of

the General Agreement on Tariffs and Trade (GATT) in 1994.

The Agreement on the Application of Sanitary and Phytosanitary Measures—also known

as the SPS Agreement—was negotiated during the Uruguay Round of GATT, and

entered into force with the establishment of the WTO at the beginning of 1995. Under the

SPS agreement, the WTO sets constraints on members' policies relating to food safety

(bacterial contaminants, pesticides, inspection and labelling) as well as animal and plant

health (imported pests and diseases). The Agreement on Technical Barriers to Trade is an

international treaty of the World Trade Organization. It was negotiated during the

Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force

with the establishment of the WTO at the end of 1994. The object ensures that technical

negotiations and standards, as well as testing and certification procedures, do not create

unnecessary obstacles to trade". The Agreement on Customs Valuation, formally known

as the Agreement on Implementation of Article VII of GATT, prescribes methods of

customs valuation that Members are to follow. Chiefly, it adopts the "transaction value"

approach.

Office of director-general

The procedures for the appointment of the WTO director-general were published in

January 2003. Additionally, there are four deputy directors-general. As of September

2013, these were: Alejandro Jara, Valentine Sendanyoye Rugwabiza, Harsha Vardhana

Singh and Rufus H. Yerxa. They are scheduled to be replaced on 1 October 2013 by Yi

Xiaozhun of China, Karl-Ernst Brauner of Germany, Yonov Frederick Agah of Nigeria

and David Shark of the United States.

List of directors-general

• Roberto Azevêdo, 2013–

• Pascal Lamy, 2005–2013

• Supachai Panitchpakdi, 2002–2005

• Mike Moore, 1999–2002

• Renato Ruggiero, 1995–1999

• Peter Sutherland, 1995

(Heads of the precursor organization, GATT):

• Peter Sutherland, 1993–1995

• Arthur Dunkel, 1980–1993

• Olivier Long, 1968–1980

• Eric Wyndham White, 1948–1968

The institution

8. The World Trade Organization (WTO) is a relatively new international organization.

However, it is responsible for a system that is over 50 years old. Established on1 January

1995, the WTO replaced the General Agreement on Tariffs and Trade (GATT), which

dated back to 1948. This was a consequence of a decision taken by governments after

seven and a half years of negotiations (the "Uruguay Round"), which ended in 1994.

With the WTO's creation, the rules were expanded to new areas. While the GATT dealt

with trade in goods only, the WTO covers trade in services and intellectual property as

well. There are also some areas, such as textiles, agriculture and sanitary and

phytosanitary measures, where the WTO goes beyond the GATT by having established

specific trade rules. Under the WTO, the procedure for settling trade disputes has also

been strengthened.

9. The WTO is not a big institution. Like the WHO, it is based in Geneva but unlike the

WHO it has no regional offices. It has a total staff of about 560 headed by a Director-

General, and a limited budget.1

Structure

10. The WTO's top decision-making body is the Ministerial Conference which meets at

least once every two years (see Chart 1). The General Council, which is normally

attended by ambassadors and other Geneva-based delegates, or capital-based officials

(who may include health experts), meets several times a year in the Geneva headquarters.

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

Settlement Body (DSB). Delegates at the day-to-day meetings of the WTO are

government representatives of all WTO Members and representatives of observer

organizations. Both during negotiations and in the WTO committee work, decisions are

made by consensus. Voting is possible but it has never been used in the WTO.

(iii) Objective

11. The objective of the WTO is illustrated by the preamble to the Agreement

Establishing the World Trade Organization (the WTO Agreement), signed in Marrakesh

in April 1994:

"Recognizing that their relations in the field of trade and economic endeavor should be

conducted with a view to raising standards of living, ensuring full employment and a

large and steadily growing volume of real income and effective demand, and expanding

the production of and trade in goods and services, while allowing for the optimal use of

the world's resources in accordance with the objective of sustainable development,

seeking both to protect and preserve the environment and to enhance the means for doing

so in a manner consistent with their respective needs and concerns at different levels of

economic development, ..." [emphasis added]

(iv) Basic function

12. One of the key functions of the WTO is to serve as a forum for trade negotiations.

The last round of multilateral trade negotiations was the Uruguay Round (1986-94). The

WTO facilitates the implementation, administration and operation of the various covered

agreements; however, the power of initiative in the context of the Organization rests not

with the Secretariat but with Member governments whose representatives constitute and

preside over the many councils and committees dealing with issues that arise in

connection with the agreements.

13. The WTO is not a funding organization; it has no mandate to finance development

projects. Nevertheless, the WTO does provide technical assistance to developing

countries. The aim of this assistance is both to assist Members in the implementation of

WTO agreements and to train officials so that they understand the system and its

agreements, know how to administer them, and negotiate more effectively. Technical

assistance is also extended to acceding countries. The training is often rather "legal" and

is aimed at providing an understanding of rights and obligations Members have under the

various agreements.

Principles of the trading system

The WTO agreements are lengthy and complex because they are legal texts covering a

wide range of activities. They deal with: agriculture, textiles and clothing, banking,

telecommunications, government purchases, industrial standards and product safety, food

sanitation regulations, intellectual property and much more. But a number of simple,

fundamental principles run throughout all of these documents. These principles are the

foundation of the multilateral trading system.

A closer look at these principles:

Trade without discrimination

Most favored nation (MFN) : treating other people equally

Under the WTO agreements, countries cannot normally discriminate between their

trading partners. Grant someone a special favor (such as a lower customs duty rate for

one of their products) and you have to do the same for all other WTO members. This

principle is known as most favored nation (MFN) treatment. It is so important that it is

the first article of the General agreement on tariffs and trade (GATT), which governs

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

(GATS) and the Agreement on Trade Related Aspects of Intellectual Property Rights

(TRIPS). In each agreement the principle is handled slightly differently. Together, those

three agreements

cover all three main areas of trade handled by the WTO.

Some exceptions are allowed. For example, countries can set up a free trade agreement

that applies only to goods traded within the group —discriminating against goods from

outside .or they can give developing countries special access to their markets. Or a

country can raise barriers against products that are considered to be traded unfairly from

specific countries and in services, countries are allowed in limited circumstances , to

discriminate. But the agreements only permit these exceptions under strict conditions.in

general, MFN means that every time a country lowers a trade barrier or opens up a

market, it has to do so for the same goods services from all its trading partners’/whether

rich or poor, weak or strong.

The principles

The trading system should be ...

• without discrimination — a country should not discriminate between its trading partners

(giving them equally “most-favored-nation” or MFN status); and it should not

discriminate between its own and foreign products, services or nationals (giving them

“national treatment”);

• freer — barriers coming down through negotiation;

• predictable — foreign companies, investors and governments should be confident that

trade barriers (including tariffs and non-tariff barriers) should not be raised arbitrarily;

tariff rates and market-opening commitments are “bound” in the WTO;

• more competitive — discouraging “unfair” practices such as export subsidies and

dumping products at below cost to gain market share;

• more beneficial for less developed countries — giving them more time to adjust, greater

flexibility, and special privileges.

National treatment: Treating foreigners and locals equally

Imported and locally –

Produced goods should be treated equally at least after foreign goods have entered the

market. The same should apply to foreign and domestic services, and to foreign and local

trademarks, copyrights and patents. This principle of “national treatment” (giving others

the same treatment as one’s own nationals) is also found in all

the three main WTO agreements although once again the principle is handled slightly

differently in each of these.

National treatment only applies once a product, service or item of intellectual property

has entered the market. Therefore, charging customs duty on an import is not violation of

national treatment even if locally produced products are not charged an equivalent tax.

Freer trade: gradually, through negotiation

Lowering trade barriers is one of the most obvious means of encouraging trade. The

barriers concerned include customs duties (or tariffs) and measures such as import bans

or quotas that restrict quantities selectively. From time to time other issues such as red

tape and exchange rate policies have also been discussed.

Since GATT’s creation in 1947–48 there have been eight rounds of trade negotiations.

A ninth round, under the Doha Development Agenda , is now underway. At first these

focused on lowering tariffs (customs duties) on imported goods. As a result of the

negotiations, by the mid-1990s industrial countries’ tariff rates on industrial goods had

fallen steadily to less than 4%.

But by the 1980s, the negotiations had expanded to cover non-tariff barriers on goods,

and to the new areas such as services and intellectual property.

Opening markets can be beneficial, but it also requires adjustment. The WTO agreements

allow countries to introduce changes gradually, through “progressive liberalization”.

Developing countries are usually given longer to fulfill their obligations.

Predictability: through binding and transparency

Sometimes, promising not to raise a trade barrier can be as important as lowering one,

 because the promise gives businesses a clearer view of their future opportunities. With

stability and predictability, investment is encouraged ,jobs are created and consumers can

fully enjoy the benefits of competition — choice and lower prices. The multilateral

trading system is an attempt by governments to make the business environment stable

and predictable.

In the WTO, when countries agree to open their markets for goods or services. They

“bind” their commitments. For goods, these bindings amount to ceilings on customs tariff

rates. Sometimes countries tax imports at rates that are lower than the bound rates.

Frequently this is the case in developing countries.in developed countries the rates

actually charged and the bound rates tend to be the same.

A country can change its bindings, but only after negotiating with its trading partners,

which could mean compensating them for loss of trade. One of the achievements of the

Uruguay Round of multilateral trade talks was to increase the amount of trade under

binding commitments.

In agriculture,100% of products now have bound tariffs. The result of all this: a

substantially higher degree of market security for traders and investors.

The system tries to improve predictability and stability in other ways as well. One way

is to discourage the use of quotas and other measures used to set limits on quantities of 

imports administering quotas can lead to more red-tape and accusations of unfair play.

Another is to make countries’ trade rules as clear and public (transparent) as possible.

Many WTO agreements require governments to disclose their policies and practices

publicly within the country or by notifying the WTO. The regular surveillance

of national trade policies through the Trade Policy Review Mechanism provides a further

means of encouraging transparency both domestically and at the multinational level.

Promoting fair competition

The WTO is something described as a “free trade” institution, but that is not entirely

accurate. The system does allow tariffs and in limited circumstances ,other forms of

protection. More accurately, it is system of rules dedicated to open, fair and undistorted

competition.

The rules on non-discrimination MFN and national treatment are designed to secure fair

conditions of trade. So too are those on dumping (exporting at below cost to gain market

share) and subsidies. The issues are complex, and the rules try to establish what fair or

unfair, and how governments can respond, in particular by charging additional import

duties calculated to compensate for damage caused by unfair trade. Many of the WTO

agreements aim to support fair competition: in agriculture, intellectual property, services,

for example. The agreement on government procurement (a “plurilateral” agreement

because it is signed by only a few WTO members) extends competition rules to purchases

by thousands of government entities in many countries. And so on.

Encouraging development and economic reform

The WTO system contributes to development. On the other hand, developing countries

need flexibility in the time they take to implement the system’s agreements. And the

agreements themselves inherit the earlier provisions of GATT that allow for special

assistance and trade concessions for developing countries.

Over three quarters of WTO members are developing countries and countries in transition

to market economies. During the seven and a half years of the Uruguay Round, over 60

of these countries implemented trade liberalization programmes autonomously.at the

same time, developing and transition economies were much more active and influential in

the Uruguay Round negotiations than in any previous round, and they are even more so in

the current Doha Development Agenda.

At the end of the Uruguay Round, developing countries were prepared to take on most

of the obligations that are required of developed countries. But the agreements did give

them transition periods to adjust to the more unfamiliar and perhaps, difficult to WTO

provisions — particularly so for the poorest, “least-developed” countries. A ministerial

decision adopted at the end of the round says better off countries should accelerate

implementing market access commitments on goods exported by the least developed

countries and it seeks increased technical assistance for them. More recently developed

countries have started to allow duty free and quota free imports for almost all products

from least developed countries. On all of this, the WTO and its members are still going

through a learning process. The current Doha Development Agenda includes developing

countries’ concerns about the difficulties they face in implementing

The Uruguay Round agreements.

The case for open trade

The economic case for an open trading system based on multilaterally

agreed rules is

simple enough and rests largely on commercial common sense. But it is also supported

  b y e v i d e n c e : t h e e x p e r i e n c e o f w o r l d t r a d e a n d e c o n o m i c

g r o w t h s i n c e t h e S e c o n d

World War. Tariffs on industrial products have fallen steeply and now average less than

5% in industrial countries. During the first 25 years after the war, world

economic

growth averaged about 5% per year, a high rate that was partly the result of lower trade

 barriers. World trade grew even faster, averaging about 8% during the period.

T h e d a t a s h o w a d e f i n i t e s t a t i s t i c a l l i n k b e t w e e n f r e e r t r a d e a n d

e c o n o m i c g r o w t h .

E c o n o m i c t h e o r y p o i n t s t o s t r o n g r e a s o n s f o r t h e l i n k . A l l

c o u n t r i e s , i n c l u d i n g t h e

 poorest, have assets — human, industrial, natural, financial — which they can employ

t o p r o d u c e g o o d s a n d s e r v i c e s f o r t h e i r d o m e s t i c m a r k e t s o r t o

c o m p e t e o v e r s e a s .

E c o n o m i c s t e l l s u s t h a t w e c a n b e n e f i t w h e n t h e s e g o o d s a n d

s e r v i c e s a r e t r a d e d .

Simply put, the principle of “comparative advantage” says that countries

prosper first

 by taking advantage of their assets in order to concentrate on what they

can produce

 best, and then by trading these products for products that other countries produce best.

In other words, liberal trade policies — policies that allow the

unrestricted flow of  

goods and services — sharpen competition, motivate innovation and breed

success.

They multiply the rewards that result from producing the best products,

with the best

design, at the best price.

But success in trade is not static. The ability to compete well in particular products can

shift from company to company when the market changes or new

technologies make

cheaper and better products possible. Producers are encouraged to adapt gradually and

in a relatively painless way. They can focus on new products, find a new

“niche” in

their current area or expand into new areas.

E x p e r i e n c e s h o w s t h a t c o m p e t i t i v e n e s s c a n a l s o s h i f t b e t w e e n

w h o l e c o u n t r i e s . A

country that may have enjoyed an advantage because of lower labour costs or because it

had good supplies of some natural resources, could also become uncompetitive in some

goods or services as its economy develops. However, with the stimulus of

an open

e c o n o m y, t h e c o u n t r y c a n m o v e o n t o b e c o m e c o m p e t i t i v e i n

s o m e o t h e r g o o d s o r  

services. This is normally a gradual process.

 Nevertheless, the temptation to ward off the challenge of competitive imports is always

  p r e s e n t . A n d r i c h e r g o v e r n m e n t s a r e m o r e l i k e l y t o

y i e l d t o t h e s i r e n c a l l o f  

 protectionism, for short term political gain — through subsidies, complicated red tape,

and hiding behind legitimate policy objectives such as environmental

preservation or  

consumer protection as an excuse to protect producers.

Protection ultimately leads to bloated, inefficient producers supplying consumers with

outdated, unattractive products. In the end, factories close and jobs are lost despite the

  p r o t e c t i o n a n d s u b s i d i e s . I f o t h e r g o v e r n m e n t s a r o u n d t h e

w o r l d p u r s u e t h e s a m e

  p o l i c i e s , m a r k e t s c o n t r a c t a n d w o r l d e c o n o m i c a c t i v i t y

i s r e d u c e d . O n e o f t h e

o b j e c t i v e s t h a t g o v e r n m e n t s b r i n g t o W T O n e g o t i a t i o n s i s t o

p r e v e n t s u c h a s e l f -

defeating and destructive drift into protectionism.

Comparative advantage

This is arguably the single most powerful insight into economics.

Suppose country A is better than country B at making automobiles, and country B

is better than country A at making bread. It is obvious (the academics would say

“trivial”) that both would benefit if A specialized in automobiles, B specialized in

 bread and they traded their products. That is a case of 

absolute advantage

.

But what if a country is bad at making everything? Will trade drive all producers

out of business? The answer, according to Ricardo, is no. The reason is the

 principle of 

comparative advantage

.

It says, countries A and B still stand to benefit from trading with each other even if 

A is better than B at making everything. If A is much more superior at making

automobiles and only slightly superior at making bread, then A should still invest

resources in what it does best — producing automobiles — and export the product

to B. B should still invest in what it does best — making bread — and export that

 product to A, even if it is not as efficient as A. Both would still benefit from the

trade. A country does not have to be best at anything to gain from trade. That is

comparative advantage.

The theory dates back to classical economist David Ricardo. It is one of the most widely

accepted among economists. It is also one of the most misunderstood

among non-economists because it is confused with absolute advantage.

It is often claimed, for example, that some countries have no comparative

advantage in anything. That is virtually impossible.

GATT: ‘provisional’ for almost half a century

From 1948 to 1994, the General Agreement on Tariffs and Trade (GATT) provided the

rules for much of 

world trade and presided over periods that saw some of the highest growth rates in

international commerce.

It seemed well-established, but throughout those 47 years, it was a provisional agreement

and organization.

The original intention was to create a third institution to handle the trade

side of international economic

cooperation, joining the two “Bretton Woods” institutions, the World Bank and the

International Monetary

Fund. Over 50 countries participated in negotiations to create an International Trade

Organization (ITO) as

a specialized agency of the United Nations. The draft ITO Charter was

ambitious. It extended beyond

world trade disciplines, to include rules on employment, commodity

agreements, restrictive business

 practices, international investment, and services.

Even before the talks concluded, 23 of the 50 participants decided in 1946 to negotiate to

reduce and bind

customs tariffs. With the Second World War only recently ended, they

wanted to give an early boost to

trade liberalization, and to begin to correct the legacy of protectionist

measures which remained in place

from the early 1930s.

This first round of negotiations resulted in 45,000 tariff concessions

affecting $10 billion of trade, about

one fifth of the world’s total. The 23 also agreed that they should accept some of the trade

rules of the draft

ITO Charter. This, they believed, should be done swiftly and “provisionally” in order to

protect the value of 

the tariff concessions they had negotiated. The combined package of trade

rules and tariff concessions

 became known as the General Agreement on Tariffs and Trade. It entered into force in

January 1948, while

t h e I T O C h a r t e r w a s s t i l l b e i n g n e g o t i a t e d . T h e 2 3 b e c a m e

f o u n d i n g G AT T m e m b e r s ( o f f i c i a l l y ,

“contracting parties”).

Although the ITO Charter was finally agreed at a UN Conference on Trade and

Employment in Havana in

March 1948, ratification in some national legislatures proved impossible. The most

serious opposition was

in the US Congress, even though the US government had been one of the

driving forces. In 1950, the

United States government announced that it would not seek Congressional

ratification of the Havana

Charter, and the ITO was effectively dead. Even though it was provisional,

the GATT remained the only

multilateral instrument governing international trade from 1948 until the WTO was

established in 1995.

For almost half a century, the GATT’s basic legal principles remained much as they were

in 1948. There

were additions in the form of a section on development added in the 1960s

and “plurilateral” agreements (i.e. with voluntary membership) in the 1970s, and

efforts to reduce tariffs further continued. Much of this

was achieved through a series of multilateral negotiations known as “trade

rounds” — the biggest leaps

f o r w a r d i n i n t e r n a t i o n a l t r a d e l i b e r a l i z a t i o n h a v e c o m e t h r o u g h

t h e s e r o u n d s w h i c h w e r e h e l d u n d e r  

GATT’s auspices.

In the early years, the GATT trade rounds concentrated on further

reducing tariffs. Then, the Kennedy

Round in the mid-sixties brought about a GATT Anti-Dumping Agreement and a section

on development.

The Tokyo Round during the seventies was the first major attempt to tackle trade barriers

that do not take

the form of tariffs, and to improve the system. The eighth, the Uruguay Round of 1986–

94, was the last and

most extensive of all. It led to the WTO and a new set of agreements.

 

The Uruguay Round

It took seven and a half years, almost twice the original schedule. By the

end, 123 countries were taking

 part. It covered almost all trade, from toothbrushes to pleasure boats, from banking to

telecommunications,

from the genes of wild rice to AIDS treatments. It was quite simply the largest trade

negotiation ever, and

most probably the largest negotiation of any kind in history.

At times it seemed doomed to fail. But in the end, the Uruguay Round brought about the

biggest reform of 

the world’s trading system since GATT was created at the end of the Second World War.

And yet, despite

its troubled progress, the Uruguay Round did see some early results.

Within only two years, participants

had agreed on a package of cuts in import duties on tropical products —

which are mainly exported by

d e v e l o p i n g c o u n t r i e s . T h e y h a d a l s o r e v i s e d t h e r u l e s

f o r s e t t l i n g d i s p u t e s , w i t h s o m e m e a s u r e s

implemented on the spot. And they called for regular reports on GATT

members’ trade policies, a move

considered important for making trade regimes transparent around the world.

The post-Uruguay Round built-in agenda

Many of the Uruguay Round agreements set timetables for future work.

Part of this “built-in agenda”

s t a r t e d a l m o s t i m m e d i a t e l y. I n s o m e a r e a s , i t i n c l u d e d n e w o r

f u r t h e r n e g o t i a t i o n s . I n o t h e r a r e a s , i t

i n c l u d e d a s s e s s m e n t s o r r e v i e w s o f t h e s i t u a t i o n a t s p e c i f i e d

t i m e s . S o m e n e g o t i a t i o n s w e r e q u i c k l y

completed, notably in basic telecommunications, financial services.

(Member governments also swiftly

agreed a deal for freer trade in information technology products, an issue outside the

“built-in agenda”.)

The agenda originally built into the Uruguay Round agreements has seen

additions and modifications. A

number of items are now part of the Doha Agenda, some of them updated.

There were well over 30 items in the original built-in agenda. This is a selection of

highlights:

1996

• Maritime services: market access negotiations to end (30 June 1996, suspended to 2000,

now part of 

Doha Development Agenda)

• Services and environment: deadline for working party report (ministerial conference,

December 1996)

• Government procurement of services: negotiations start

1997

• Basic telecoms: negotiations end (15 February)

• Financial services: negotiations end (30 December)

• Intellectual property, creating a multilateral system of notification and registration of

geographical

indications for wines: negotiations start, now part of Doha Development Agenda

1998

• Textiles and clothing: new phase begins 1 January

• Services (emergency safeguards): results of negotiations on emergency safeguards to

take effect (by 1

January 1998, deadline now March 2004)

• Rules of origin: Work programme on harmonization of rules of origin to be completed

(20 July 1998)

• Government procurement: further negotiations start, for improving rules and procedures

(by end of 

1998)

• Dispute settlement: full review of rules and procedures (to start by end of 1998)

1999

• Intellectual property: certain exceptions to patentability and protection of plant

varieties: review starts

2000

• Agriculture: negotiations start, now part of Doha Development Agenda

• Services: new round of negotiations start, now part of Doha Development Agenda

• Tariff bindings: review of definition of “principle supplier” having negotiating rights

under GATT Art

28 on modifying bindings

• Intellectual property: first of two-yearly reviews of the implementation of the agreement

2002

• Textiles and clothing: new phase begins 1 January

2007

• Textiles and clothing: full integration into GATT and agreement expires 1 January

Overview: a navigational guide

The WTO Agreements cover goods, services and intellectual property.

They spell out the principles of  

liberalization, and the permitted exceptions. They include individual

countries’ commitments to lower  

customs tariffs and other trade barriers, and to open and keep open services markets.

They set procedures

for settling disputes. They prescribe special treatment for developing countries. They

require governments

to make their trade policies transparent by notifying the WTO about laws

in force and measures adopted,

and through regular reports by the secretariat on countries’ trade policies.

These agreements are often called the WTO’s trade rules, and the WTO is often

described as “rules-based”,

a s y s t e m b a s e d o n r u l e s . B u t i t ’ s i m p o r t a n t t o r e m e m b e r t h a t

t h e r u l e s a r e a c t u a l l y a g r e e m e n t s t h a t

governments negotiated.

This chapter focuses on the Uruguay Round agreements, which are the basis of the

present WTO system.

Additional work is also now underway in the WTO. This is the result of

decisions taken at Ministerial

Conferences, in particular the meeting in Doha, November 2001, when

new negotiations and other work  

were launched. (More on the Doha Agenda, later.)

Six-part broad outline

“The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts”

is a daunting list of about 60 agreements, annexes, decisions and

understandings. In fact, the agreements fall into a simple structure with six

main parts: an umbrella agreement (the Agreement Establishing the WTO); agreements

for each of the three broad areas of trade that the WTO covers (goods, services and

intellectual property); dispute settlement; and reviews of governments’ trade policies.

The agreements for the two largest areas — goods and services — share a common three-

part outline, even though the detail is sometimes quite different.

• They start with broad principles : the General Agreement on Tariffs and Trade (GATT)

(for goods), and t h e G e n e r a l A g r e e m e n t o n T r a d e i n S e r v i c e s

( G AT S ) . ( T h e t h i r d a r e a , T r a d e - R e l a t e d A s p e c t s o f   Intellectual

Property Rights (TRIPS), also falls into this category although at present it has no

additional parts.)

• Then come extra agreements and annexes dealing with the special requirements of

specific sectors or issues.

• Finally, there are the detailed and lengthy schedules (or lists) of

commitments made by individual countries allowing specific foreign

products or service-providers access to their markets. For GATT,

these take the form of binding commitments on tariffs for goods in general, and

combinations of tariffs and quotas for some agricultural goods. For GATS, the

commitments state how much access foreign service providers are allowed

for specific sectors, and they include lists of types of services where

i n d i v i d u a l c o u n t r i e s s a y t h e y a r e n o t a p p l y i n g t h e

“ m o s t - f a v o u r e d - n a t i o n ” p r i n c i p l e o f n o n - discrimination.

Underpinning these are dispute settlement, which is based on the agreements and

commitments, and trade policy reviews, an exercise in transparency.

Much of the Uruguay Round dealt with the first two parts: general

principles and principles for specific s e c t o r s . A t t h e s a m e t i m e ,

m a r k e t a c c e s s n e g o t i a t i o n s w e r e p o s s i b l e f o r i n d u s t r i a l g o o d s .

O n c e t h e p r i n c i p l e s h a d b e e n w o r k e d o u t , n e g o t i a t i o n s c o u l d

p r o c e e d o n t h e c o m m i t m e n t s f o r s e c t o r s s u c h a s agriculture and

services.

Tariffs: more bindings and closer to zero

The bulkiest results of Uruguay Round are the 22,500 pages listing individual countries’

commitments on specific categories of goods and services. These include commitments

to cut and “bind” their customs duty rates on imports of goods. In some cases, tariffs are

being cut to zero. There is also a significant increase in the number of “bound” tariffs —

duty rates that are committed in the WTO and are difficult to raise.

Tariff cuts

Developed countries’ tariff cuts were for the most part phased in over five years from 1

January 1995. The result is a 40% cut in their tariffs on industrial products,

from an average of 6.3% to 3.8%. The value of   imported industrial products

that receive duty-free treatment in developed countries will jump from 20% to 44%.

T h e r e w i l l a l s o b e f e w e r p r o d u c t s c h a r g e d h i g h d u t y r a t e s . T h e

p r o p o r t i o n o f i m p o r t s i n t o d e v e l o p e d countries from all sources facing

tariffs rates of more than 15% will decline from 7% to 5%. The proportion of developing

country exports facing tariffs above 15% in industrial countries will fall from 9% to 5%.

The Uruguay Round package has been improved. On 26 March 1997, 40

countries accounting for more than 92% of world trade in information

technology products, agreed to eliminate import duties and other  charges on

these products by 2000 (by 2007 in a handful of cases). As with other tariff commitments,

each participating country is applying its commitments equally to exports from all WTO

members (i.e. on a most-favored-nation basis), even from members that did not make

commitments.

More bindings

Developed countries increased the number of imports whose tariff rates

are “bound” (committed and

d i f f i c u l t t o i n c r e a s e ) f r o m 7 8 % o f p r o d u c t l i n e s t o 9 9 % . F o r

d e v e l o p i n g c o u n t r i e s , t h e i n c r e a s e w a s

considerable: from 21% to 73%. Economies in transition from central

planning increased their bindings

from 73% to 98%. This all means a substantially higher degree of market security for

traders and investors.

Agriculture: fairer markets for farmers

The original GATT did apply to agricultural trade, but it contained

loopholes. For example, it allowed

countries to use some non-tariff measures such as import quotas, and to

subsidize. Agricultural trade

 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 sector. It was a significant first step towards order, fair competition and a less

distorted sector. It was

implemented over a six year period (and is still being implemented by developing

countries under their 10-

year period), that began in 1995. The Uruguay Round agreement included

a commitment to continue the

reform through new negotiations. These were launched in 2000, as required by the

Agriculture Agreement.

The Agriculture Agreement: new rules and commitments

The objective of the

Agriculture Agreement

is to reform trade in the sector and to make policies more

market-oriented. This would improve predictability and security for

importing and exporting countries

alike.

The new rules and commitments apply to:

•

market access

— various trade restrictions confronting imports

•

domestic support

— subsidies and other programmes, including those that raise or guarantee farmgate

 prices and farmers’ incomes

•

export subsidies

and other methods used to make exports artificially competitive.

The agreement does allow governments to support their rural economies,

but preferably through policies

that cause less distortion to trade. It also allows some flexibility in the way commitments

are implemented.

D e v e l o p i n g c o u n t r i e s d o n o t h a v e t o c u t t h e i r s u b s i d i e s o r

l o w e r t h e i r t a r i f f s a s m u c h a s d e v e l o p e d

countries, and they are given extra time to complete their obligations. Least-developed

countries don’t have

to do this at all . Special provisions deal with the interests of countries

that rely on imports for their food

supplies, and the concerns of least-developed economies.

“ P e a c e ” p r o v i s i o n s w i t h i n t h e a g r e e m e n t a i m t o r e d u c e t h e

l i k e l i h o o d o f d i s p u t e s o r c h a l l e n g e s o n

agricultural subsidies over a period of nine years, until the end of 2003.

Standards and safety

Article 20 of the General Agreement on Tariffs and Trade (GATT) allows governments

to act on trade in

order to protect human, animal or plant life or health, provided they do

not discriminate or use this as

disguised protectionism. In addition, there are two specific WTO agreements dealing with

food safety and

animal and plant health and safety, and with product standards.

Food, animal and plant products: how safe is safe?

Problem: How do you ensure that your country’s consumers are being supplied with food

that is safe to eat

 — “safe” by the standards you consider appropriate? And at the same time, how can you

ensure that strict

health and safety regulations are not being used as an excuse for protecting domestic

producers?

A s e p a r a t e a g r e e m e n t o n f o o d s a f e t y a n d a n i m a l a n d

p l a n t h e a l t h s t a n d a r d s ( t h e

S a n i t a r y a n d

Phytosanitary Measures Agreement

or 

SPS

) sets out the basic rules.

It allows countries to set their own standards. But it also says regulations must be based

on science. They

should be applied only to the extent necessary to protect human, animal or

plant life or health. And they

should not arbitrarily or unjustifiably discriminate between countries where identical or

similar conditions

 prevail.

Member countries are encouraged to use international standards,

guidelines and recommendations where

they exist. However, members may use measures which result in higher

standards if there is scientific

 justification. They can also set higher standards based on appropriate

assessment of risks so long as the

approach is consistent, not arbitrary. And they can to some extent apply

the “precautionary principle”, a

kind of “safety first” approach to deal with scientific uncertainty. Article 5.7 of the SPS

Agreement allows

temporary “precautionary” measures.

T h e a g r e e m e n t s t i l l a l l o w s c o u n t r i e s t o u s e d i f f e r e n t s t a n d a r d s

a n d d i f f e r e n t m e t h o d s o f i n s p e c t i n g

 products. So how can an exporting country be sure the practices it applies to its products

are acceptable in

an importing country? If an exporting country can demonstrate that the

measures it applies to its exports

achieve the same level of health protection as in the importing country,

then the importing country is

expected to accept the exporting country’s standards and methods.

The agreement includes provisions on control, inspection and approval procedures.

Governments must

 provide advance notice of new or changed sanitary and phytosanitary regulations, and

establish a national

enquiry point to provide information. The agreement complements that on technical

barriers to trade.

Technical regulations and standards

Technical regulations and industrial standards are important, but they vary from country

to country. Having

too many different standards makes life difficult for producers and

exporters. If the standards are set

arbitrarily, they could be used as an excuse for protectionism. Standards can become

obstacles to trade.

The

Technical Barriers to Trade

 

Agreement (TBT)

tries to ensure that regulations, standards, testing and

certification procedures do not create unnecessary obstacles.

The agreement recognizes countries’ rights to adopt the standards they consider

appropriate — for example,

for human, animal or plant life or health, for the protection of the environment or to meet

other consumer 

interests. Moreover, members are not prevented from taking measures necessary to

ensure their standards

are met. In order to prevent too much diversity, the agreement encourages

countries to use international

standards where these are appropriate, but it does not require them to change their levels

of protection as a

result.

The agreement sets out a code of good practice for the preparation,

adoption and application of standards

 by central government bodies. It also includes provisions describing how

local government and non-

governmental bodies should apply their own regulations — normally they should use the

same principles as

apply to central governments.

The agreement says the procedures used to decide whether a product

conforms with national standards

have to be fair and equitable. It discourages any methods that would give domestically

produced goods an

unfair advantage. The agreement also encourages countries to recognize

each other ’s testing procedures.

That way, a product can be assessed to see if it meets the importing country’s standards

through testing in

the country where it is made.

Manufacturers and exporters need to know what the latest standards are in

their prospective markets. To

h e l p e n s u r e t h a t t h i s i n f o r m a t i o n i s m a d e a v a i l a b l e

c o n v e n i e n t l y , a l l W T O m e m b e r g o v e r n m e n t s a r e

required to establish national enquiry points.

Non-tariff barriers: red tape, etc

A number of agreements deal with various bureaucratic or legal issues that

could involve hindrances to

trade.

• import licensing

• rules for the valuation of goods at customs

• preshipment inspection: further checks on imports

• rules of origin: made in ... where?

• investment measures

Import licensing: keeping procedures clear

Although less widely used now than in the past, import licensing systems are subject to

disciplines in the

W T O . T h e

A g r e e m e n t o n I m p o r t L i c e n s i n g P r o c e d u r e s

s a y s i m p o r t l i c e n s i n g s h o u l d b e s i m p l e ,

t r a n s p a r e n t a n d p r e d i c t a b l e . F o r e x a m p l e , t h e a g r e e m e n t

r e q u i r e s g o v e r n m e n t s t o p u b l i s h s u f f i c i e n t

information for traders to know how and why the licences are granted. It

also describes how countries

s h o u l d n o t i f y t h e W T O w h e n t h e y i n t r o d u c e n e w i m p o r t

l i c e n s i n g p r o c e d u r e s o r c h a n g e e x i s t i n g

 procedures. The agreement offers guidance on how governments should assess

applications for licences.

S o m e l i c e n c e s a r e i s s u e d a u t o m a t i c a l l y i f c e r t a i n c o n d i t i o n s a r e

m e t . T h e a g r e e m e n t s e t s c r i t e r i a f o r  

automatic licensing so that the procedures used do not restrict trade.

Other licences are not issued automatically. Here, the agreement tries to minimize the

importers’ burden in

applying for licences, so that the administrative work does not in itself

restrict or distort imports. The

agreement says the agencies handling licensing should not normally take more than 30

days to deal with an

application — 60 days when all applications are considered at the same time.

The WTO is run by its member

governments. All major decisions are

made by the membership as a

whole, either by ministers (who meet at

least once every two years) or by their

ambassadors or delegates (who meet

regularly in

Ge n eva) . Decisions are

normally taken by

consensus.

In this respect, the WTO is different from some other international organizations such as

the World Bank 

a n d I n t e r n a t i o n a l M o n e t a r y F u n d . I n t h e W T O , p o w e r i s n o t

d e l e g a t e d t o a b o a r d o f d i r e c t o r s o r t h e

organization’s head.

When WTO rules impose disciplines on countries’ policies, that is the

outcome of negotiations among

WTO members. The rules are enforced by the members themselves under

agreed procedures that they

n e g o t i a t e d , i n c l u d i n g t h e p o s s i b i l i t y o f t r a d e s a n c t i o n s . B u t

t h o s e s a n c t i o n s a r e i m p o s e d b y m e m b e r  

countries, and authorized by the membership as a whole. This is quite different from

other agencies whose

 bureaucracies can, for example, influence a country’s policy by threatening to withhold

credit.

Reaching decisions by consensus among some 150 members can be

difficult. Its main advantage is that

decisions made this way are more acceptable to all members. And despite the difficulty,

some remarkable

agreements have been reached. Nevertheless, proposals for the creation of

a smaller executive body — 

 perhaps like a board of directors each representing different groups of countries — are

heard periodically.

But for now, the WTO is a member-driven, consensus-based organization.