World trade organization

Evolution of the WTOPredecessor 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

An Introduction to the WTO

A What is the 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” concept

The 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

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 and

economies in transition.

Decision making is by consensus If consensus is not possible decisions

will be taken by a majority vote.

The Uruguay Round agreements

 The Agreement establishing the WTO

Its Annexes

 Annex

1A - GATT 1994 , related agreements (e.g Agreements on

Agriculture, Subsidies etc.) and texts

1B- General Agreement on Trade in Services (GATS) and Annexes 1C- 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 DSU

1 Consultations, good offices, conciliation and mediation

2 Panel proceedings

3 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

 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”.

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 in Article 1, each Member shall accord services and service suppliers of any other Member treatment no less favorable than that provided for under the terms, 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 their

Schedules 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)

National Treatment Art 17

“In the sectors inscribed in its Schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures

affecting the supply of services, treatment no less favorable than that it accords to its own like services and service suppliers.”

Example : The availability of tax incentives only to companies controlled

by nationals of the country in the retail services sector

Art 17 covers both de jure and de facto discrimination

Domestic regulations Art 6

Article 6 addresses domestic regulations as these may act as barriers to trade 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 which

commitments 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

Participating in the process

 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

Some related websites of interest

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