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WORLD TRADE

ORGANIZATION

SUBMITTED TO: SUBMITTED BY:DR. LUXMI AARZOO DALAL

NEHA LAKRA

POOJA CHANDEL

PRIYANKASINGH

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INTRODUCTION

The WTO was established on 1st January 1995 under the Marrakech Agreement,

replacing the General Agreement on Tariffs and Trade (GATT), which

commenced in 1948.

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

supervise and liberalize international trade.

WTO focuses on derive from previous trade negotiations, especially from

the Uruguay Round (19861994).

The organization is currently endeavoring to persist with a trade negotiation

called the Doha Development Agenda (or Doha Round), which was launched in

2001.

The WTO administers the trade agreements negotiated by its members, inparticular the GATT, the GATS (General Agreement on Trade in Services), and

the TRIPS(Trade Related Aspects of Intellectual Property Rights)

The WTO has 153 members, representing more than 97% of total world trade and

30 observers, most seeking membership.

India is one of the founder member of the WTO.

WTO is governed by a ministerial conference, meeting every two years.

BASIC PRINCIPLES

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

and the WTO:

Non-Discrimination:It has two major components: the most favored

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 principle of non-discrimination

has one more dimension: national treatment. National treatment enjoins allmember countries to treat imported and locally produced goods equally. It only

applies only after a product, service or item of intellectual property has entered

the market.

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

to maintain institutions allowing for the review of administrative decisions

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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).

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.

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 foreignmarkets. 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 materialize

Safety Valves: A final principle embodied in the WTO is that, in specific

circumstances, governments should be able to restrict trade. Four types of

provisions exist in this connection.

Goods and services meant for noneconomic objectives such as public

health and national security.

Industries likely to be injured by competition from imports.

Articles aimed at ensuring fair competition.

Provisions permitting intervention in trade for economic reasons.

OBJECTIVES

Raising standard of living and income, promoting full employment, expanding

production and trade, and optimum utilization of world resources.

Introduce sustainable development.

Taking positive steps to ensure that developing countries, secure a better share of

growth in world trade.

Prompt trade flows by encouraging nations to adopt non-discriminatory and non-

predictable policies.

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Establish procedures for solving trade disputes among members.

FUNCTIONS

Administering and implementing the multilateral and plurilateral trade

agreements which together make up the WTO.

Acting as a forum for multilateral trade negotiations.

Seeking to resolve trade disputes.

Overseeing national trade policies.

Cooperating with other international institutes involved in global economic

policy-making.

DIFFERENCESB/WGATT AND THE WTO

The GATT was a set of rules, a multilateral agreement, with no institutional

foundation, only a small associated secretariat which had its origins in the

attempt to establish an International Trade Organization in the 1940s. The WTO

is a permanent institution with its own secretariat.

The GATT was applied on a provisional basis even if, after more than 40 years,

governments chose to treat it as permanent commitment. The WTO

commitments are full and permanent.

The GATT rules applied to trade in merchandise goods. In addition to goods, the

WTO covers trade in services and trade-related aspects of intellectual property.

While the GATT was multi-lateral instrument, by the 1980s, many new

agreements had been added of a plurilateral, and therefore, selective nature. The

agreements which constitute the WTO are almost all multilateral and thus,

involve commitments for the entire memberships.

The WTO dispute settlement system , more automatic and thus much less

susceptible to blockages, than the old GATT system. The implementation of WTO

dispute findings will also be more easily assured.

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The Structure of the WTO is dominated by its highest authority, the Ministerial

Conference, composed of representatives of all WTO members, which is required

to meet at least every two years and which can take decisions on all matters under

any of the multilateral trade agreements. The day-to-day work of the WTO,however, falls to a number of subsidiary bodies; principally the General Council,

also composed of all WTO members, which is required to report to the

MinisterialConference.

The General Council convenes in two particular forms - as the Dispute Settlement

Body, to oversee the dispute settlement procedures and as the Trade Policy

Review Body to conduct regular reviews of the trade policies of individual WTO

members.

The

Council for Goods oversees the implementation and functioning of all theagreements covering trade in goods.

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The Committee on Trade and Development is concerned with issues relating to

the developing countries and, especially, to the "least-developed" among them.

The Committee on Balance of Payments is responsible for consultations between

WTO members and countries which take trade-restrictive measures, in order to

cope with balance-of-payments difficulties.

Issues relating to WTO's financing and budget are dealt with by a Committee on

Budget.

WTO-THE WHOLE WORLD IN WHOSE HANDS

The fundamental principles of such an agreement are:-

Most favored nations (MFN) every signatory will extend to every other signatory

member , the same and equal treatment in a non-discriminatory manner (All

General

Council

Committee

on Budget

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nations weather rich or poor , weak or strong would be given same treatment by

all the signatory members).

The second principle isNational Treatment which means that the imported goods

and domestically produced goods will be treated alike , except for the payment of

custom duty at the time of import.

GATT 23 original signatories

AUSTRALIA

LEBANON

LUXEMBOURG

THENETEHRLANDS

NEW ZEALAND

NORWAY

PAKISTAN

SOUTHERN RHODESIA

SYRIA

SOUTH AFRICA

UNITED KINGDOM

UNITED STATES

INDIA

BELGIUM

BRAZIL

BURMA

CANADA

CEYLON

CHILE

CHINA

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CUBA

CZECHOSLOVAKIA

FRANCE

GATT AND WTO

The rationale of international trade is comparative advantage so that all countries

benefit through open & fair international trade.

In international trade predictability of rules and regulations governing import,

standards ,tariffs , customs procedures and so on are absolutely necessary if there

is orderly growth of trade.

Realizing that trade would suffer if there is no stability , leading trading nations

entered into the General Agreement On Tariff and Trade(GATT) in 1947-48 to

ensure orderly and transparent international trade.

GATT is a multinational treaty that was signed in 1948 by 102 countries with the

objective of bringing down tariff and non-tariff barriers to international trade.

Until 1994 the main concerns of GATT were to check DUMPING and

UNETHICAL BUSINESS PRACTICES.

The Uruguay Round Agreements of GATT(held during 1984-94) envisaged an

Increase in the coverage of legal provisions and establishment of an institution

called the World Trade Organization (WTO)

AGREEMENTS OFWTO

1. General Elimination of Quantitative restrictions(QRs):-

No prohibitions or restrictions other than duties and taxes whether made

effective through quotas, import or export licenses or other measures, shall be

instituted or maintained by any contracting country on the importation of any

product of any other member country( GATT,1947)

QR refers to limits set by countries to restrict imports(or exports).This could bein the form of quota, licensing (special import license , restricted list and

canalized list).

Canalizing imports refers to allowing only a few firms to import specific items by

the government agency responsible for monitoring the respective sector. Thus,

QRs are measures other than duties , taken to restrict import.

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Import tariffs (duties) per se do not prevent entry of products.

On the other hand, QRs can be more trade restrictive than tariff measures. So,

WTO does not permit member countries to impose QRs under normal

circumstances.

But countries can impose QRs in non discriminatory manner for any of these

reasons:-

To safeguard the balance of payment position.

As a safeguard measure when there is serious injury to domestic

producers.

Restrictions on any agricultural or fisheries product when there is

temporary domestic surplus of the product.

AGREEMENT ON AGRICULTURE (AOA)

The original GATT was applicable to agricultural trade but it had loopholes.

The agreement allowed member countries to use some non-tariff measures such

as import quotas and to subsidize.

As a result of this agricultural trade was highly distorted , especially with the use

of export subsidies that normally would not have been allowed for industrial

products.

The objective of agriculture agreement is to reform trade in the sector and make

policies more market oriented in order to improve predictability level forimporting and exporting countries alike.

As per agreement, the developing countries dont have to cut their subsidies or

lower their tariffs as much as developed countries and they were given extra time

to complete their obligations.

Special provisions have been made keeping in view the interests of the least

developed economies

AOA has 3 basic clauses:-

Market access

Domestic support

Export subsidies

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As per AOA tariff alone is the rule of market access in agricultural products.

The commitment required conversion of all non-barriers into equivalent tariff

rates i.e., levels of protection. (this conversion was called tariffication)

The agricultural agreement distinguishes between support programmes that

stimulate production directly and those who are considered to have no directeffect .

Domestic subsidies that do have a direct effect on production and trade were to

be reduced in countries where support exceeded level specified(using calculations

known as total agreement measurement of support or total AMS)

There are some categories of support measures that were not subject to

reduction:-

1. Green box measures These measures have minimum impact on trade and can

be used freely. They include govt. services like research ,disease control,infrastructure and food security.

Also include payments directly made to farmers that dont stimulate production

such as certain forms of direct income support.

2. Blue box measures- Include indirect payments to farmers where they are

required to limit production ,certain government assisted programmes to

encourage agricultural and rural development in developing countries and other

measured when compared with the total value of the product or products

supported.

AGREEMENT ON TEXTILE AND CLOTHING(ATC) 1995-

2004

Before the agreement came into effect a large part of textiles and clothing exports

from the developing countries to the industrial countries was subject to quota

under special regime.

Till the end of the Uruguay round, textile and clothing quotas were negotiated

bilaterally and governed by rules of multi fibre arrangement(MFA).

This provided scope for the application of selective quantitative restrictions when

surge in imports of particular products caused severe damage to industry of

importing country.

MFA was a deviation from the basic GATT principle of non-discrimination.

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On january1, 1995 it was replaced by WTO agreement on textiles and clothing

which removed these quotas.

ARTICLE 3 of WTO deals with quantitative restrictions other than those under

MFA.

ARTICLE 5 of ATC contains rules and procedures regarding circumvention of

quotas through trans shipment, re-routing ,false declaration of origin or

falsification of official documents

The textile Monitoring Body(TMB) was established to supervise the

implementation of the ATC and ensure that they are in conformity with the rules.

It is a quasi judicial standing body which consists of a chairman and 10 TMB

members who discharge their functions by taking all decisions by consensus.

GENERAL AGREEMENT ON TRADE IN SERVICES(GATS)

GATS is the first ever set of multilateral, legally enforceable rules covering

international trade in services.

GATS operates on 3 levels:-

1. The main text containing general principles and obligations

2. Annexes dealing with rules for specific sectors

3. Individual countries specific commitments to provide access to their markets.

4. Lists showing where countries are temporarily not applying the MFN principle of

non-discrimination

The agreement covers all internationally traded services .

They are classified into 4 categories-

1. Cross border supply(services from one country to the other)

2. Consumption abroad(firms making use of a service in another country)

3. Commercial presence(a foreign company setting branches in other countries to

provide services)

4. Presence of natural persons(people traveling from their country to the other to supply

services there)

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MFN treatment:- Treating ones trading partners equally. Under GATS if a

country allows foreign competition in a sector , equal opportunities in that sector

should be given to service providers from all other WTO countries.

Transparency:-Govt. must publish all relevant laws and regulations so that

foreign and govt. can use them to obtain info about regulations in any servicesector.

Regulations:-govt. should regulate services reasonably , objectively and

impartially

International payments and transfers:-

Once govt. has made a commitment to open a service sector to foreign

competition , it must not normally restrict money from being transferred out of

the country as payment for services supplied in that sector.

(The only exception is when there are balance of payments difficulties and even

in such cases the restrictions must be temporary and subject to other limits and

conditions.)

AGREEMENT ON TRADE RELATED INVESTMENT

MEASURES(TRIMS)

It recognizes that certain measures can restrict and distort trade and states that

no member shall apply any measure that discriminates against foreigners or

foreign products.

According to this ,the govt. cannot impose measures which require particular

levels of local procurement by an enterprise(local content requirements)

It also discourages measure which limit a companys imports or set targets for the

company to export(trade balancing requirements)

AGREEMENT ON IMPORT LISCENCING

The agreement on import licensing procedures says import licensing should be

simple, transparent and predictable, if there are quantitative restrictions.For e.g.

the agreement requires the government to publish sufficient information for

traders to know how and why the licenses are granted.

It also describes how countries should notify the WTO when they introduce new

import licensing procedures or change existing procedures.

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The agreement offers guidance on how government should assess applications for

license.

It sets criteria for automatic licensing so that procedures used do not restrict

trade.

It also tries to minimize the importers burden in applying for the licenses, so that

the administrative work does not restrict or distort imports.

The agreement says that the agencies handling the 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. This is now part of the WTO

package signed by all the WTO members.

AGREEMENT ON VALUATION OF GOODSAT CUSTOMS

The WTO agreement on custom valuation aims for a fair, uniform and neutralsystem for the valuation of goods for customs purposes a system that outlaws

the use of arbitrary custom values.

The Uruguay Round ministerial decision gives customs administrations the right

to request further information in cases where they have reason to doubt the

accuracy of the declared value of imported goods.

AGREEMENT ON PRE-SHIPMENT INVESTMENT:

Pre-shipment inspection is the practice of employing specialized companies to

check the shipment details- essentially price, quality and quantity- of goodsordered from overseas.

The purpose of it is to safeguard national interests like prevention of capital

flight, commercial fraud and custom duty evasion.

The WTO agreement recognizes that GATT principles and obligations apply to

the activities of pre shipment inspection agencies mandated by governments. The

obligations of exporting members towards countries using pre-shipment

inspection includes non-discrimination in the application of domestic laws and

regulations, prompt publication of those laws and regulations and the provisionof technical assistance where requested.

The agreement establishes an independent review procedure. It is administered

jointly by an organization representing inspection agencies and a body

representing exporters. Its purpose is to resolve disputes between exporter and

an inspection agency.

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AGREEMENT ON RULES OF ORIGIN

RULES OF ORIGIN are the criteria used to define where a product was made.

Rules of origin are also used to compile trade statistics, and for made in

labels that are attached to the products.

This agreement requires the WTO members to ensure that their rules of origin

are transparent and do not have restricting, distorting or disruptive effects on

international trade.

The agreement aims for common( harmonized ) rules of origin among all the

WTO members, except in some kinds of preferential trade. For e.g. , countries

setting up a free trade area are allowed to use different rules of origin for product

traded under their free trade agreement.

AGREEMENT TO TECHNICAL BARRIERS TO TRADE

(technical regulations and standards)

The agreement on technical barriers to trade (TBT) tries to ensure that

regulations, standards, testing and certification procedures do not create

unnecessary obstacles.

The WTOs version is a modification of the code negotiated in 1973-79 Tokyo

round. However, the agreement recognizes the countries rights to set the

standards they consider appropriate- for e.g. , for human, animal or plant life or

health, for the protection of the environment or to meet other consumer

interests. In order to prevent too much diversity, the agreement encouragescountries to use international standards wheresoevers appropriate.

The agreement states that the procedures used to decide whether a product

conforms with 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 recognise each others testing

procedures. In this way a product can be assessed to certify if it meets the

importing countrys standard through testing in the country where it is made.

Manufacturers and exporters also ought to know about the latest standards intheir prospective markets.

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AGREEMENT ON ANTI-DUMPING

If a company exports a product at a price lower than the price it normally charges

on its own home market, it is said to be dumping the product. WTO disciplines

anti dumping actions, and it is often called the ANTI-DUMPING agreement.

The WTO anti-dumping agreement covers:

1. Detailed rules for calculating the amount of dumping.

2. Procedures for initiating and conducting anti-dumping investigation.

3. Rules on the implementation and duration (normally 5 years ) of anti-dumping

measures.

The agreement says that the member countries must inform the committee on

anti-dumping practices about all preliminary and final anti-dumping actions,

promptly and in detail.

They must also report on all investigations twice a year.

When differences arise members are encouraged to consult each other.

They can also use the WTOs dispute settlement procedure.

TRADE RELATED INTELLECTUAL PROPERTY RIGHTS(

TRIPS)

India has already implemented the TRIPS agreement by launching the product

patent system from january 2005.

Another notable point in this field has been in the passing of TRIPS plus

legislation in the field of copyright law.

The 1994 amendments to the Act of 1957 provides protection to all original

literary, dramatic, musical and artistic works, cinematographic films and sound

recordings.

The most recent changes as satellite broadcasting, software and digital

technology under Indian copyright protection.

INFORMATION TECHNOLOGYAGREEMENT

During the Singapore Ministerial Conference of WTO, a Ministerial declaration

on trade in information technology products was adopted.

This declaration aims to expand the world trade in information technology

products .

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India participated in the negotiations on the agreement from the early stages and

after extensive discussions with trading partners, joined as a participant on April

1, 1997.

REGIONAL TRADE AGREEMENTS:

Although regional trade blocks are based on the principle of discriminatory trade,

WTO has a special provision for this.

Using this condition , many regional trade groups such as North American Free

Trade (NAFTA), European Free Trade Area (EFTA), Association of South East

AsianNations (ASEAN) and GulfCo-operativeCouncil (GCC) have been set up.

India has been instrumental in setting up of the South Asian Association for

Regional Cooperation (SAARC), whose major achievement in 1995 was the

conclusion of the negotiations on trade preferences within the framework of the

SAARC Preferential Trading Arrangement (SAPTA).

SAPTA became operational on december 7, 1995 and includes preferential tariff

concessions on 226 items and product groups.

The Indian Ocean rim Association for Regional Cooperation was formed along

with 13 countries in the region.Economic cooperation is expected to take place in

trade facilitation, promotion and liberalisation, promotion of foreign investment,

promotion of scientific and technological cooperation, tourism and development

of infrastructure and human resources.

EVALUATION OFWTO

BENEFITS:-

WTO has made significant achievements in reducing the tariff and non-tariff

barriers to trade. Developing countries too have been benefiting significantly out

of it.

The liberalization of investment has been resulting in increase in competition,

efficiency of resource utilisation, improvement in quality and productivity and

fall in prices and acceleration of economic development.

WTO provides a forum for multilateral discussion of economic relations between

nations.

It has a system in place to settle trade disputes between nations.

WTO has a mechanism to deal with violation of trade agreements.

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DRAWBACKS/CRITICISMS

Negotiations and decision making in the WTO are dominated by the developed

countries.

Many developing countries do not have the financial and knowledge resources to

effectively participate in the WTO discussions and negations.

Because of the dependence of developing countries on the developed ones, the

developed countries are able to resort to arms-twisting tactics.

Many of the policy liberalizations are done without considering the vulnerability

of the developing countries and the possible adverse effect on them.

The WTO has not been successful in imposing the organization's disciplines on

the developed countries.

The developing countries have, in general, been getting a raw deal from the WTO.

WTO & DEVELOPING COUNTRIES

Do Developing Countries Suffer in the WTO System?

The Wall Street Journal has reported that while the US and the EC are getting the

best prices of the world trade pie, the developing countries are getting the crumbs.

SPECIAL CONSIDERATION

Some of the areas like TRIPs, TRIMs and services have been very sensitive as faras the developing countries are concerned as the Uruguay Round Agreements in

them mean that the developing countries will have to lower the protection against

competition from the unequal developed economies.

In the previous Rounds, the UR also gives special considerations to developing

countries, particularly to the least developed countries and to those with balance

of payments problems.

WTO AND INDIA

The Uruguay Round Agreements and WTO have come in for scathing criticismsin India. Many politicians and others have argued that India should withdraw

from the WTO.

Criticisms are either baseless or due to lack of knowledge of the international

trading environment& misinformation.

Just meant to oppose the government by the opposition parties.

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Should India Quit WTO?

Accepting the demand of some of the critics that India should withdraw from the

WTO will be a big blunder that the nation can commit.

By being a part of WTO India enjoys the most favoured nation(MFN)status with

all other members of the WTO.

Opting out would mean an infinitely laborious task of entering into bilateral

negotiations with each and every one of the trading partners which would

amount to having ones arms twisted bilaterally by the US, the EC and Japan,

turn by turn ,on everything from intellectual property rights to NPT, human

rights and environmentally clean technologies for packaging.

INDIAS TRADE GAIN

Estimates of Indias possible gain from the trade liberalization vary very wide- between $2 billion and $7 billion a year. Although the liberalization of trade in

textiles is benefitting the developing countries , Indias gain largely depend on

her competitive strength vis-a vis other textile exporters.

Indias gain from the trade liberalization is much less than of many other

developing countries ,such as the South East Asian economies and China,

because-

1. Indias share in the world trade is very low(less than one per cent).

2. Its foreign trade-GDP ratio is very low.

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