An Introduction to the WTO

A. What is the WTO?

The World Trade Organisation (WTO)

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

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

(source: WTO)

Evolution of the WTO

Predecessor of the WTO The GATT 47

The General Agreement on Tariffs and Trade (GATT) 1947 -the first major effort to establish international rules governing trade in goods. Though initially conceived as a provisional legal instrument, it endured for almost 50 years. It functioned without a formal organisational framework to oversee its implementation as the proposed International Trade Organisation (ITO) never came into being and the ITO Charter (aka the Havana Charter) of which GATT was only to be a part, never came into effect. GATTs 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 WTOs functions

Administers the WTO Agreements and facilitates their operation and implementation Provides a forum for trade negotiations among member states on matters covered by the Agreements and for further liberalisation of trade amongst members Responsible for the settlement of differences and disputes between members Responsible for periodic reviews of the trade policies of members Also provides technical assistance and training for developing countries Cooperates with other international organisations on subjects of mutual interest

Principles of the world trading system under the WTO

Non discrimination- Most Favoured Nation (MFN) and National Treatment obligations Freer trade negotiations aimed at lowering trade barriers Predictability and transparency - binding commitments, restrictions on the use of barriers to trade and transparent trade policies and regulatory frameworks (e.g. transparency obligations in the major trade agreements and the Trade Policy Review Mechanism) The promotion of fair competition- MFN, national treatment and rules against unfair trade practices (e.g. anti dumping) Encouragement of development and economic reform

Organisational structure of the WTO

Ministerial Conference- The apex body for decision making (meets every 2 years). Composition:-ministerial representatives. General Council- performs the functions of the Conference between meetings and has specific duties assigned to it by the WTO agreements. Composition:- governmental representatives. The General Council also meets as the Dispute Settlement Body and the Trade Policy Review Body. Councils for Trade in Goods (oversees GATT), Trade in Services (oversees GATS) and TRIPS which report to and assist the General Council. Committees on special subjects, Committees functioning under the Councils and Committees for the Plurilateral Agreements.

Membership- developed, developing, least developed countries 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)

WTO principles
Most Favoured Nation (MFN) In general, any agreement or deal that gives rights to one WTO member state must be given to all other member states A country cannot discriminate amongst WTO member states National Treatment (NT) In general, if your country has committed itself to some trade liberalisation, it must, in that area, treat foreign suppliers/investors no less favourably than domestic supliers/investors are treated That does not mean equal treatment for all: you can treat foreign MNEs better than the way you treat your domestic firms

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)

Disputes
Dispute Panels

Country A (and B, C, .) can complain that country X is breaching its obligations under one or more WTO agreements If Country X disagrees, the WTO can set up a mutually agreed (or imposed) panel a jury The panel hears evidence from all formal parties (and may allow external party evidence) The verdict may tell Country X to change its behaviour (if guilty) or face punitive financial action from the complainants until it complies An Appellate Body can rule on disputed verdicts

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

Decision making
Ministerial Conferences, Geneva negotiations and work in capitals In theory, all new agreements and the conclusion of all trade Rounds are agreed at two-yearly Ministerial Conferences In between ministerials, most real negotiations on details are done by resident Mission delegates in Geneva. They prepare material for ministerials When Geneva problems arise, powerful Missions will pressure national capitals of less powerful members to be more reasonable in Geneva Some countries about 30 have no permanent Mission delegation in Geneva and so miss meetings. Silence, including absence, is consent.

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 Policy Reviews

-

Trade policies of all members are reviewed on a regular basis With aim to increase transparency, improve debate and enable assessment of the effects of policies on trade These reviews are used to highlight areas that need reform Many of these reviews recommend privatization. ITUC country reports

Cont.

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

(Art.1 GATS)

WTO: Benefits for business

Creation of a stable, rule based, multilateral trading regime Market access translates into market opportunities The rule based system creates certain rights of access - Security of access
tariff bindings and disciplines on barriers to trade whether tariff or non tariff. It also provides non discriminatory treatment of products and services.

- Stability of access
the application of uniform rules in key areas of the trading process e.g. customs valuation, import licenses etc.

- Rights against unfair trade practices for

Domestic industry Export industry Import industry

Participating in the process

Why is it important? Improve market access through continuous lobbying through chambers of commerce, trade/product/service organizations. Overcome problem areas in international trading e.g. technical standards, high tariffs on processed goods. Expand or protect trading interests through support or opposition of new subject areas in trade negotiations. Preserve or defend markets through their governments use of the dispute resolution mechanism.

For further information

The WTO Website : www.wto.org

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

Thank you