Why need RTA’s?

Tamanna ChaturvediConsultant

Indian Institute of Foreign Trade

should I export?

Why should Thailand or China trade with CLMV countries: case of China and Vietnam

6t 1t

1m 3m

kgs/man hr

kgs/man hr

Ch. had absolute advantage over Vietnm in prod of tea (sp in tea and no mngoes)Vietnm has absolute advantage over Ch. in prod of mngoes( sp in mngoes and no tea

China will sell 6 kgs tea to Vietnam

Take 3kgs mango in return

If China would have dedicated its one man hour in producing mangoes it would have produced 1M. Now its diverting that labour to production of tea hence can produce 6 kgs of tea in one hour and exchange it with 3kgs of mango from Vietnam thereby gaining 2m (3m-m)

To produce 6 kgs of tea, Vietnam would be req. 6 manhrs. If these 6 manhrs are diverted from tea to mangoes, Vietnam can produce 18mangoes. Out of this 3 mangoes are exchanged with China and Vietnam still have an advantage of 15 mangoes.

China would exchange 6kgs of tea with 3kgs of mango from

Vietnam and both countries would gain..

……...how?

Case of Thailand and Lao PDR

6s 1s

3r 2r

kgs/man hr

bushels/man hr

Oops….Thailand had absolute advantage over Lao PDR in prod of both sugar and rice

Lao’s position: Lao has absolute disadvantage with respect to Thailand

in both sugar and rice. Lao has relatively less disadvantage in rice than in

sugar.Or Lao has comparative adv wrt Thailand in rice &

comparative disadvantage in sugar.

Thailand’s position: Thai has absolute advantage with respect to Lao in both

sugar and rice It has relatively more advantage in sugar (6:1) than rice

(3:2) Thai has comparative advantage over Lao in sugar and

comparative disadv in rice.

Let’s analyze two country’s position…..

Can a business deal still crack?

……..lets see how?

Thailand sp in sugar and Lao in rice.

Thai exchanges 6s for 6r with Lao

Thailand’s position Thai gains 3r by only producing sugar and no

rice

Lao’s position If Lao would not have taken 6s from Thai, it

would have req 6 manhrs to produce that. This 6 hrs if dedicated to produce rice, it can

produce 6*2=12r Out of this 6r is given to Thai and still have

advantage of 6r.

Case of Thailand and Lao PDR

6s 1s

3r 2r

kgs/man hr

bushels/man hr

Thailand had absolute advantage over Lao PDR in prod of both sugar and rice

What is it after all?

WTO GENESISWTO GENESIS

The General Agreement on Trade and Tariff (GATT) came into existence in 1947

It sought substantial reduction in tariff and other barriers to trade and to eliminate discriminatory treatment in international commerce.

Eight rounds of negotiations had taken place during five decades of its existence.

23 Countries came together to form GATT

1. Australia 13 Lebanon2. Belgium 14 Luxembourg3. Brazil 15 The Netherlands4. Burma (now Myanmar) 16 New Zealand5. Canada 17 Norway6. Ceylon (now Sri Lanka) 18 Pakistan7. Chile, 19 Zimbabwe8. China 9. Cuba 20 Syria10. Czechoslovakia 21 South Africa11. France 22 United Kingdom12. India 23 United States

Were you there?

UR 1986-93Tokyo

1973-79Kennedy 1964-67Dhillon 1960-61

Geneva Round 1956

Torquay Round 1951

Annecy Round 1949

Geneva Round 1947

Eight rounds of GATT…..WTO.. How different was it?

Agriculture Textiles and Clothing Services TRIPS Dispute Settlement

Some facts…

The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations.

Location : Geneva, SwitzerlandEstablished : 1 January 1995Created by : Uruguay Round negotiations Membership : 153 countries Head : Pascal Lamy (DG)Secretariat staff : 550

Thailand & Myanmar1995

China: 2001

Vietnam: 2006

Cambodia: 2003Lao:

WTO Journey of GMS Country

1. Afghanistan2. Algeria3. Belarus4. Bhutan5. Bosnia6. Ethipoia7. Iran8. Iraq9. Kazakastan10. Lao PDR11. Libya

12. Russian Federation

13. Saudi Arabia14. Serbia15. Seychelles16. Sudan17. Tazakistan18. Tonga19. Ukraine 20. Uzbekistan21. Yemen

Observer Status Countries

Application Working Party Established

Number of Working Party Meetings *

Draft Working Party Report **

Afghanistan Nov 2004 Dec 2004    

Algeria Jun 1987 Jun 1987 9 Jun 2006

Andorra Jul 1997   Oct 1997 1  

Azerbaijan Jun 1997 Jul 1997 4  

Bahamas May 2001 Jul 2001    

Belarus Sep 1993 Oct 1993 7 Apr 2005 (FS)

Bhutan Sep 1999 Oct 1999 3 Aug 2005 (FS)

Bosnia and Herzegovina May 1999 Jul 1999 2  

Cape Verde Nov 1999 Jul 2000 3 Nov 2005

Ethiopia Jan 2003 Feb 2003    

Iran Jul 1996 May 2005    

Iraq Sep 2004 Dec 2004    

Kazakhstan Jan 1996 Feb 1996 9 Sep 2006

Lao People's Democratic Republic

Jul 1997 Feb 1998 2  

Lebanese Republic Jan 1999 Apr 1999 4 Dec 2005 (FS)

Libyan Arab Jamahiriya Jun 2004 Jul 2004    

BASIC PRINCIPLESBASIC PRINCIPLES

1. NON-DISCRIMINATION MFN (Most Favored Nation) Members are bound to grant to the products

of other members treatment not less favorable than that accorded to the products of any other country.

National Treatment Once goods have cleared customs, imported

goods must be treated no less favorably than the equivalent domestically produced goods.

2. PREDICTABLE AND GROWING ACCESS TO THE MARKETS

Prohibition of Quantitative Restrictions Binding of Tariffs Bound Tariffs cannot be increased Progressive reduction in the protection. Exceptions: Safeguards, BOP.

3. FAIR COMPETITION

4. TRANSPARENCY

5. ENCOURAGE DEVELOPMENT

STRUCTURE OF WTO

MINISTERIAL CONFERENCE

Dispute Settlement Body

Apellate Body

Council for Trade in Goods

Dispute SettlementPanel

General Council

Trade Policy Review Body

Committee on Trade & Environment

Trade andDevelopment

BOP

Budget Finance & Administration

Council for TRIPS

Council for Trade in Services

Trade in Civil Aviation

Government procurement

International Dairy Council

International Meat Council

- Working party on professional services - Committee on Trade in Financial Services - NG on Maritime Transport Services - NG on Movement of Natural Persons- NG on Basic Telecommunications

- Textiles Monitoring Body - Committee on safeguards- Committee on Import Licensing- Committee on Anti Dumping Practices - Committee on Technical Barriers to Trade - Committee on Customs Valuation - Committee on Subsidies & Countervailing measures - Committee on Rules of Origin- Committee on Trade related Investment Measures - Committee on Sanitary & Phytosanitary Measures- Committee on Agriculture - Committee on Market Access

Ministerial conferences

Hong Kong, 13-18 December 2005

Cancún, 10-14 September 2003

Doha, 9-13 November 2001

Seattle, November 30 – December 3, 1999

Geneva, 18-20 May 1998

Singapore, 9-13 December 1996

Annex 1-A: Agreement on Trade in Goods

1. Agreement on Agriculture2. Agreement on SPS Measures3. Agreement on Textiles & Clothing4. Agreement on Technical Barriers to Trade5. Agreement on Trade related Investment

Measures6. Agreement on Pre Shipment Inspection7. Agreement on Rules of Origin8. Agreement on Import Licensing procedure9. Agreement on SCM10. Agreement on Safeguards

Ministerial conferences

Hong Kong, 13-18 December 2005

Cancún, 10-14 September 2003

Doha, 9-13 November 2001

Seattle, November 30 – December 3, 1999

Geneva, 18-20 May 1998

Singapore, 9-13 December 1996

Singapore, 9-13 December 1996

Review of first two years of work Setting up of working groups

International investment Competition policy Transparency in Govn procurement Trade facilitation

Geneva, 18-20 May 1998

Celebration of 50 years of GATT First negative views expressed

(Asian financial crises) Developed countries interest

Discussion of trade and environment

Labour standards

Seattle, November 30 – December 3, 1999

Divisions between rich and poor nations become most obvious

Violent anti-WTO protests by NGOs

Many country ministers actually walked out of the negotiations, leading to an early end to the conference with nothing of value achieved

Doha, 9-13 November 2001

Decisions taken at Doha related to the concerns of developing countries

Doha Development Agenda negotiations to clarify or revise anti-

dumping rules; transparency in government procurement,

investment and competition policy. TRIPs not being allowed to be an

impediment to public health in poorer countries

Cancún, 10-14 September 2003

Foreign investors (developing countries feared their industries will be controlled by foreign multinationals)

Transparency in government purchasing (developing countries feared this might help foreign companies win public sector business)

Trade facilitation -- making things like customs procedures simpler

Cancún, 10-14 September 2003

1. The WTO does NOT tell governments what to do

2. The WTO is NOT for free trade at any cost3. Weaker countries do have a choice, they

are NOT forced to join the WTO 4. The WTO is NOT only concerned about

commercial interests. This does NOT take priority over development

5. The WTO is NOT undemocratic

WTO rules in short…..

Then why countries went into signing RTA’s?