What is it after

all?

How do countries build up

relations?

Preferential Trade Agreement

Free Trade Agreement (Area)
Customs Union
Common Market
Economic, Political, Monetary Union

Why WTO?
The multilateral trading system is an
attempt by the governments to provide
investors, employers, employees and
consumers
with
a
business
environment
which
encourages
trade, investment and job creation
as well as choice and low prices in the
market place. Such an environment
needs to be stable and predictable, if
the business has to invest and thrive.

History
Industrial Revolution 18th-19th
Century
Expansion in Trade, Markets, Colonies
World Wars I & II
Wars followed by Depression led to High Tariff Walls
Unemployment

History
Following World War II, victor nations
sought to create institutions that
would eliminate the causes of war
To eliminate the economic causes of
war
by
establishing
three
international economic institutions
Economic
philosophy
of
these
Bretton Woods institutions were
Classical Economic Neoliberalism

Brettons Wood meeting

after IInd World War
1944

IMF
UK

US
India

IBRD

ITO

GATT

The Founders
1.
2.

Australia
Belgium
Luxembourg
3. Brazil
Netherlands
4. Burma (now Myanmar)
5. Canada
6. Ceylon (now Sri Lanka)
7. Chile
8. China
9. Cuba
10. Czechoslovakia
Africa
11. France

13. Lebanon
14.
15. The
16. New Zealand
17. Norway
18. Pakistan
19. Zimbabwe
20. Syria
21. South
22. United

Year

Nature of Negotiation

No.

The
Geneva
Round
(Ist)

1947

Tariffs

23

The
Annecy
Round
(IInd)

1949

The
Torquay
Round
(IIIrd)

1951

The
Geneva
Round
(IVth)

1956

*elimination of certain duties & preferences

*binding of duties at existing level
Tariffs

13

*concessions increased from 66% to 80%

*147 sets of bilateral negotiations
completed
Tariffs

38

*About 8700 concessions were negotiated

*Only 147 out of 400 agreements concluded
Tariffs

26

*Only US granted concessions on imports.

*No other country felt satisfied

The
1960
Tariffs
26
Dhillon
-61 *A bilateral tariff agreement between US &
Round
EEC
to reduceavg
tariff trade
on variety
of Industrial
First
five rounds
reduced
weighted
tariff from
(Vth)

The
1964
Tariff and Antidumping measures
Kenne -67 *US Tariffs were reduced by 50% spread over 5
dy
yrs
Roun
*Increased access to world markets for ag
d
products
(VIth)
*Granting of concessions to the developing
countries on a non reciprocal basis.
*Anti dumping practice was established, S&D
treatment

26

Tokyo 1973
Tariff and Non Tariff measures
Roun
-79 *Working on MFN Clause reviewed
d
*Tariffs and Non tariff measures in favour of
(VIIth)
developing countries recognized
*Dispute settlement was notified
*Tariff cutting commitments legally binding

102

URUG 1986
Tariff and Non tariff measures
UAY
-93 First time inclusion of:
Roun
WTO establishment.
d
Agriculture
(VIIIth)
Textiles and Clothing
TRIPS
Services

123

History of WTO
Two world wars: 1914-1919 & 1939-45
followed by great depressions Trade
Wars!.. GATT formed in 1947
Monopoly of G-7 countries: US, UK,
Canada, Germany, France, Japan and
Italy versus USSR
WTO formed when Soviet Union collapsed
in 1989

Most Favored Nation

MFN

MFN
Article 1 - Trade without
Discrimination
Countries cannot discriminate
between their trading partners.
If it grants someone a special favor
(such as lower customs duty), then it
has to give that benefit to all
member countries

MFN Features
While any favourable treatment to any
country whether a Member/not has to be
accorded to all other Members, the same is
not necessarily required vice-versa, i.e. any
treatment to the Members is not needed to
be accorded to a Non-Member.
Whether
a
Member
provides
MFN
treatment to a non-member is entirely a
bilateral issue. Therefore, the alternative is
a series of separate bilateral agreements
with all the countries.

Why MFN Important?

A. Efficiency
MFN makes it possible to import a
product from most efficient supplier
in world.
Lack of MFN, conversely, would entail
availability
of
products
from
preferred sources of imports

Why MFN Important?

B. Predictability & Transparency
MFN requires
favourable treatment
granted to one country to be
immediately
and
unconditionally
granted to all other Members.
Lack of MFN would mean that each and
every country in the world has a
separate set of conditions for trade
with every other country, unimaginably
complicating the global trading system.

Why MFN Important?

C. Simplify Negotiations
Due to the uniformity, it reduces cost of maintaining
the system for individual countries.
Benefits include need for not having detailed rules of
origin including import monitoring regimes as
products from all sources will get the same
treatmentone of the main drawbacks of PTAs.
Reduces negotiation cost as members negotiate
bilaterally and the treatment negotiated is
unconditionally provided to all thereby reducing the
need to negotiate with all countries in the world on
the same product.

Flip Side
However...
There is a flip side to this advantage
Bilateral
negotiations
lack
transparency since non-participants
are not informed as to the real reasons
behind the results achieved.
Negotiations tend to reflect the
power relationship & may not be
most advantageous.

Exceptions
Preferential Trade Agreements: The
most significant departure in terms of real
trade impact from MFN rule. Today over 50%
of world trade- PTAs.
Special
&
Differential
Treatment:
Enabling
Clause
for
Developing
and
Developed Countries.
Protection from Unfair Trade by raising
tariff barriers against goods from specific
countries.

Preferential Trade
PTAs allowed with following conditions:
Tariffs & other barriers to trade be
eliminated with respect to substantially
all trade within the region customs
union must be the aim.
Tariff & other barriers to outside
countries must not be higher or more
restrictive than they were prior to RTAs.

National Treatment
NT

Features
NT obligations begin once imported
product has entered domestic market
by paying customs duties.
NT
principle
requires
not
to
discriminate
against
imported
products vis--vis their like domestic
products.

Features
Prevents imposition of discriminatory
taxes such as sales or VAT at greater
than those levied on a like domestic
products
&
any
discriminatory
treatment in other areas including
through
domestic
regulations
&
requirements affecting the sale, offering
for sale, purchase, transportation,
distribution or use of products.

NT necessary
This addresses a primal mercantilist
tendency to protect domestic products
and producers.
To ensure that liberalization process
proceeds on negotiated track and
members
dont
offset
through
equivalent domestic taxes imposed
discriminatorily on imported goods only.

NT necessary
A country may not have preferred source
of imports, may shield its economy.
Infant
industry
followers.

argument

still

has

As compared to tariffs, domestic taxes not

required to be notified lack transparency,
predictability, and negotiability.

NT necessary
Limits the distortive impact on
international trade by impeding the
adoption of policies and measures for
protection of domestic industry
Promotes efficiency and productivity
by enhancing competitiveness of
domestic
industry
through
competitive international goods.

Exceptions

Government procurement
Domestic subsidies
Cinematographic Films
Other exceptions

Special & Differential

Treatment
S&DT

Prebisch's Theory Enabling Clause

According to Prebisch's theory, the
international terms of trade tend in
the long run to move against
primary products;
Thus in order to develop, underdeveloped
countries must therefore shift from
primary-product
exports
to
manufactures via an interventionist
state policy of industrial growth.

Features
S&DT an imp and integral part of
WTO
Developing Countries about 130
including 30 Least Developed
Countries
Developing Countries seeking a more
active role

Features
Differential and more favourable
treatment for the LDCs
Technical assistance to cope up
Only for Transitional time periods

Thats it for today

Phew!