paritosh agarwal - economics

H.R. College of Commerce and Economics

M.Com. Part 1 – Semester 1

Paritosh Agarwal – 01

September 29, 2014

Economics of Global Trade – World Trade Organization

ACKNOWLEDGEMENT

I express my sincere regards to my parents and friends who have rendered theircooperation in

compiling this project on ‘WTO and Developing Countries’ and conducting research. I would

also like to express my gratitude to the subject Professor, Dr. Geeta Nair and Dr. Jehangir

Bharucha for their guidance and encouragement in making this project a success.

INDEX

Sr. No. Title Page No.

01. World Trade Organization 02-04

02. Review of Literature 05-08

03. Principles of the World Trade Organization 09-09

04. Structure of the World Trade Organization 10-11

05. Functions of the World Trade Organization 12-12

06. Objectives of the World Trade Organization 13-13

07. Agendas of the World Trade Organization 14-21

08. Provisions by the World Trade Organization 22-25

09. Limitations of the World Trade Organization 26-27

10. Developing Countries have low power in the WTO Framework 28-28

11. Conclusion 29-29

12. References 30-31

Paritosh Agarwal - 01 1

World Trade Organization

Peace and Justice, the two desirable abstracts that are wished by every country in the world.

To achieve these, there are certain bodies or agreements that have been made around the

world with the same determination. The main purpose of such bodies is to regulate talks,

trade and other rules and regulations among the different countries of the World. The most

popular bodies are the United Nations and the World Trade Organization. Though there are a

few similarities between the GATT and the WTO, they are distinctly different from each

other.

The General Agreement on Tariffs and Trade (GATT) was a multilateral agreement

regulating international trade. It was set up in 1948 with a purpose of substantial reduction of

tariffs and other trade barriers and the elimination of preferences, on a reciprocal and

mutually advantageous basis. It was originally placed under the International Trade

Organization (ITO), which was supported by the United NationsOrganization (UNO). When

the ITO failed to ratify, GATT evolved into the World Trade Organization (WTO). There are

a few flaws in the GATT structure such as not enough enforcing power, which led to many

disputes among the members.

World Trade Organization (WTO) was formed as a replacement for GATT in 1995 with the

purpose of supervising and liberalising international trade. The organization deals with

regulation of trade between participating countries, it also provides a framework for

negotiations of trade agreements. It is also responsible for enforcing trade laws, agreements

and resolving disputes. The WTO was created with the purpose of being a stronger and

having a more permanent framework as compared to the previous GATT. It also monitors

trade in services and trade-related aspects of intellectual property rights, in addition to trade

in goods. As at June 26, 2014, WTO has 160 member countries.(World Trade Organization,

2014)

The WTO was born out of negotiations, and everything the WTO does is the result of

negotiations. The bulk of the WTO’s current work comes from the 1986–94 negotiations

called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs

and Trade (GATT). The WTO is currently the host to new negotiations, under the ‘Doha

Development Agenda’ launched in 2001.(Page, Davenport, & Hewitt, 1991)


The World Trade Organization (WTO) is the only international organization dealing with the

global rules of trade between nations. Its main function is to ensure that trade flows as

smoothly, predictably and freely as possible.

At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s

trading nations and ratified in their parliaments. The goal is to help producers of goods and

services, exporters, and importers conduct their business.

The past 50 years have seen an exceptional growth in world trade. Merchandise exports grew

on average by 6% annually. Total trade in 2000 was 22-times the level of 1950. GATT and

the WTO have helped to create a strong and prosperous trading system contributing to

unprecedented growth.

The system was developed through a series of trade negotiations, or rounds, held under

GATT. The first rounds dealt mainly with tariff reductions but later negotiations included

other areas such as anti-dumping and non-tariff measures. The last round, the 1986-94

Uruguay Round, led to the WTO’s creation.

The negotiations did not end there. Some continued after the end of the Uruguay Round. In

February 1997 an agreement was reached on telecommunications services, with 69

governments agreeing to wide-ranging liberalization measures that went beyond those agreed

in the Uruguay Round.(Page, Davenport, & Hewitt, 1991)

In the same year 40 governments successfully concluded negotiations for tariff-free trade in

information technology products, and 70 members concluded a financial services deal

covering more than 95% of trade in banking, insurance, securities and financial information.

In 2000, new talks started on agriculture and services. These have now been incorporated into

a broader agenda launched at the fourth WTO Ministerial Conference in Doha, Qatar, in

November 2001.

The work program, the Doha Development Agenda (DDA), adds negotiations and other work

on non-agricultural tariffs, trade and environment, WTO rules such as anti-dumping and

subsidies, investment, competition policy, trade facilitation, transparency in government

procurement, intellectual property, and a range of issues raised by developing countries as

difficulties they face in implementing the present WTO agreements.(World Trade

Organization, 2005)


There are a number of ways of looking at the World Trade Organization. It is an organization

for trade opening. It is a forum for governments to negotiate trade agreements. It is a place

for them to settle trade disputes. It operates a system of trade rules. Essentially, the WTO is a

place where member governments try to sort out the trade problems they face with each

other.

The General Agreement on Tariffs and Trade, comprising of 118 members was thus replaced

by the WTO in 1995. While GATT was a mere legal arrangement between member nations,

the WTO is in fact a dynamic mechanism which is permanent in nature.

Nations that rely heavily upon trade are the most likely to benefit. The WTO establishes rules

and structure for international trade, providing stability for these nations' commerce. The

rules are intended to make trade as free and fair as possible. Free-trade advocates say freer,

fairer trade can lower the cost of living while providing consumers with more choices. It can

also stimulate growth, fueling development and making people more prosperous.

Opponents of the WTO say that negotiations conducted without public scrutiny end up

benefiting wealthy nations. They say the organization infringes on the sovereignty of member

states and trade deals don't consider the impact on the environment. Developing countries,

which often have uncompetitive industries that rely on government support, can be hurt by

opening up to global trade as their companies struggle against more efficient foreign rivals.

Many economists view this dislocation as a temporary setback that reverses as companies in

developing countries adapt to global competition.

Russia provides an extreme example of the political and economic considerations facing

countries that wish to join the club. The last large economy to join the WTO, which it did in

2012, Russia spent almost two decades negotiating its accession. Moscow implemented

necessary custom reforms relatively quickly when it first began negotiations in 1993, but the

government was reluctant to reduce state control of the oil and gas sectors. Inadequate

protection of intellectual property rights also damaged its candidacy, writes CFR Senior

Fellow Stewart Patrick. Political reluctance stemmed from Cold War provisions in a U.S.

trade act that prevented the establishment of normal trade relations with the Soviet Union.

(The Guardian, 2012)

Although U.S. presidents used a built-in waiver to skirt the law from 1994 until 2012, when

Congress repealed it, a new measure was introduced that aimed to blacklist Russian human


rights violators. Still, the economic incentives won out, and Russia's WTO membership is

expected to boost the country's gross domestic product by 3.3 percent ($49 billion) in the

medium-term and 11 percent in the long-term.

Review of Literature

‘Strengthening Developing Countries in the WTO’ an article by BhagirathLal Das in 1999,

talks about the GATT and WTO and the building developing nations. He further states that

earlier, the rules of the GATT had their impact principally on the imports and exports of a

country but then the WTO agreements had much wider implications for a country’s economy.

The disciplines on services and intellectual property rights (IPRs), which were the new

additions to the system as a result of the Uruguay Round of Multilateral Trade Negotiations

(MTNs), had a significant impact on the production process, technological development,

financial institutions like banks and the insurance sector, inflow and outflow of funds on the

so-called invisible account, vital modern infrastructure like telecommunications, etc.

The agreement was based on the principle of reciprocity in the exchange of concessions, it

was naturally more appropriate for participation by countries at similar levels of economic

development. To make it more relevant for the developing countries, the principle of

reciprocity was not rigidly followed in the case of concessions expected from them, while

they got the benefit of concessions made by others through the operation of the Most Favored

Nation (MFN) treatment clause which ensures total non-discrimination among the members

in respect of enjoyment of benefits. There were other advantages as well of joining the

agreement for the developing nations. It removed the need for entering into a series of

bilateral agreements with various countries and renewing them from time to time. It also

provided some protection to the weak trading partners through a multilateral dispute

settlement system, which precluded unilateral actions.

Rapid expansion of exports invariably generated protectionist tendencies, policies and

measures against the underdeveloped countries. All this curtailed the opportunities available

to the developing countries. Such tendencies revealed themselves in the form of special trade

regimes in some sectors, restraints on imports/exports outside the framework of the GATT,

enthusiastic use of anti-dumping investigations and duties, and the current trend of using

environmental concerns as a pretext for restraining imports.


What is important to note is that the major developed countries did not hesitate to bypass or

circumvent the normal GATT disciplines in sectors of particular importance to the

developing countries when the exports from these countries in the said sectors were perceived

to cause problems for their domestic industry. (Das, 1999)

In the paper of ‘Impact of WTO Policies on Developing Countries: Issues and Perspectives’

by ‘Ravinder Rena’ in 2012, speaks of the “Doha Ministerial Declaration”, adopted on

November 14, 2001, stated that member-countries commit themselves to “substantial

improvements in market access, reductions of, with a view to phasing out, all forms of export

subsidies, and substantial reductions in trade-distorting domestic support.”

This was to be an ambitious effort to make globalization more inclusive and help the world's

poor, particularly by slashing barriers and subsidies in farming. The initial agenda comprised

both further trade liberalization and new rule-making, underpinned by commitments to

strengthen substantial assistance to developing countries. However, the negotiations have

been highly contentious. Disagreements still continue over several key areas including

agriculture subsidies, which emerged as critical in July 2006.

Small and/or developing economies face specific challenges in their participation in world

trade, for example lack of economy of scale or limited natural resources. The Doha

Declaration mandates the General Council to examine these problems and to make

recommendations to the next Ministerial Conference as to what trade-related measures could

improve the integration of small and/or developing economies.

About two thirds of the WTO’s around 150 members are developing countries. They play an

increasingly important and active role in the WTO because of their numbers, more

importance in the global economy, and also the increasingly look to trade as a vital tool in

their development efforts. Developing countries are a highly diverse group often with very

different views and concerns.

The least-developed countries have received extra attention in the WTO. All the WTO

agreements recognize that they must benefit from the greatest possible flexibility, and better-

off members must make extra efforts to lower import barriers on least-developed countries’

exports.


The report talks about the different views country hold on the objectives to be discussed.

While the US and EU want their goods to be exported hurdle-free across the globe, the EU,

Japan and developing countries are pressurizing on putting social, economic and

environmental sustainability as higher objectives than trade. But the major nations have come

together and given utmost importance to “food and agriculture.” (Rena R. , 2012)

‘WTO Upside Down: Trade Facilitation vs Agriculture’ the research by ‘D. Ravikanth’ in

2014 highlights that India has been objecting the latest reform suggested by the US and

industrialized countries. The topic of Trade Facilitation was dropped in the Doha round of

203 but the US, the EU and its allies were able to get the topic back on to the discussion table

on July 2004. The underlying objective of the reform was freedom to transit, fees and

formalities related to the import and export of goods and services. The said ultimate aim was

to reduce the trading costs and facilitate trade for the exported in turn resulting in import

facilitation in the destination market. Effectively the trade facilitation deal is a comprehensive

market access agreement.

India has been objecting the reform as it believes that the archaic reforms need to be updated

before implementation of a brand new reform. In the Bali round held in 2013, the US

succeeded in imposing the new reform by burying the principle of reciprocity, which was

considered to be a hallmark decision in the trade negotiations.

The industrialized countries chose not to undertake no commitments on the agriculture and

development issues. The US and its allies “promised” to do their best in the interest of the

developing nations. In terms of agriculture it covers general services, an understanding on the

tariff rate quota administration, export competition and a weak long programme to phase out

subsidies in cotton. Non-binding preferential rules of origin for the export of the export of

industrial goods by the poorest countries, an operationalization of waiver on the preferential

treatment to the service suppliers in the LCDs, duty free and quota free market access for

LCDs and a mechanism to monitor special and differential treatment flexibilities formed the

part of the developmental issues.

But all these at the end are “promises” and not legally binding outcomes in agriculture and

development pillars which are a prerequisite for developing nations. After a face-to-face

negotiation between India, US and Indonesian chair of the conference and the WTO Director


General, India’s representative gave up its position on refraining from challenging the Public

Stock Holding Programmes on staples till WTO decides a permanent solution. Ultimately the

reform was signed and India, along with the few supports, were left with a new reform

enforcement, archaic policies and a few promises. (Ravikanth, 2014)


The book “Behind the Scenes at the WTO: the real world of international trade negotiations,

authored by FatoumataJawara and Aileen Kwa, offers a very telling account of what is to

come. The book accounts what happened before and during the Fourth Ministerial

Conference in Doha, Qatar, in November 2001. It tells how the developing countries were

bullied and coerced into acquiescing with an ‘agreement’ with which most of them

profoundly disagreed. The central message of the book is that the developed countries are

benefitting from the WTO along with a handful of other middle income countries and the

rest, including a great majority of developing countries are not. It has promoted the question

of whether the world needs the WTO or not and if it does then what should it look like. The

authors have found substantial support for and indeed arrived at their position through

numerous interviews with member government WTO delegates as well as WTO Secretariat

staff members. At the same time this position illustrates well as to why it is important for

economists to offer a theoretically coherent and empirically grounded answer to the question

of whether the world needs a WTO and if yes then what should it look like.(Jawara & Kwa,

2009)

The report titled ‘Differentiation between Developing Countries in the WTO’ prepared by the

Swedish Board of Agriculture (International Affairs Division, June) which was written by

Jonas Kasteng, Arne Karlsson, Carina Lindberg is focused to find out a more appropriate way

to differentiate between the developing countries in WTO with regards to agriculture and

food security. The countries which are included in the developing countries category are

found to belong to a very heterogeneous group. In the large group of developing countries

there are certain more advanced countries, but also a large number of poor countries that

suffer from a difficult food security situation. The category also includes certain countries

that enjoy a level of food security and also engage in agricultural exports but are yet a part of

this category of developing countries. The paper aims at presenting a different approach to

differentiate between developing countries as regards to the Agreement on Agriculture.

(Kasteng, Karlsson, & Lindberg, 2004)


Principles of the World Trade Organization

The WTO agreements are lengthy and complex because they are legal texts covering a wide

range of activities. But a number of simple, fundamental principles run throughout all of

these documents. These principles are the foundation of the multilateral trading system.

Non-discrimination

A country should not discriminate between its trading partners and it should not discriminate

between its own and foreign products, services or nationals.

Openness

Lowering trade barriers is one of the most obvious ways of encouraging trade; these barriers

include customs duties (or tariffs) and measures such as import bans or quotas that restrict

quantities selectively. In addition, foreign companies, investors and governments should be

confident that trade barriers should not be raised arbitrarily. With stability and predictability,

investment is encouraged, jobs are created and consumers can fully enjoy the benefits of

competition — choice and lower prices.

More competitive

Discouraging ‘unfair’ practices, such as export subsidies and dumping products at below cost

to gain market share; the issues are complex, and the rules try to establish what is fair or

unfair, and how governments can respond, in particular by charging additional import duties

calculated to compensate for damage caused by unfair trade.

More beneficial for less developed countries

Giving them more time to adjust, greater flexibility and special privileges; over three-quarters

of WTO members are developing countries and countries in transition to market economies.

The WTO agreements give them transition periods to adjust to the more unfamiliar.

Protection of the environment

The WTO’s agreements permit members to take measures to protect not only the

environment but also public health, animal health and plant health. However, these measures

must be applied in the same way to both national and foreign businesses. In other words,


members must not use environmental protection measures as a means of disguising

protectionist policies.(World Trade Organization)

Structure of the World Trade Organization

The Ministerial Conference is the highest organ of the WTO and is to meet at least once

every two years. It is normally composed of all the Ministers of Trade of the Members of the

WTO. The Ministerial Conference has supreme authority over all matters, as expressed under

Article IV: 1 WTO Agreement.

The General Council is composed of representatives of all the members – normally country

delegates based in Geneva. The General Council is in session between the meetings of the

Ministerial Council. In essence this is the real engine of the WTO and has all the powers of

the Ministerial Council when that body is not in operation. The General Council also acts as

the Dispute Settlement Body and the Trade Policy Body (Article IV: 2-4 WTO Agreement).

The Council for Trade in Goods, the Council for Trade in Services and the Council for Trade-

Related Aspects of Intellectual Property Rights (TRIPS) have been established with specific

spheres of responsibility. In fact, there are separate agreements within the framework of

WTO that define and confine their operation (Article IV: 5 WTO Agreement).

The Committee on Trade and Development, the Committee on Balance-of-Payments

Restrictions and the Committee on Budget, Finance and Administration have self-evident

functions (see Article IV: 7 WTO Agreement). Likewise the Director-General and

the Secretariat operate on a purely administrative basis. However, it should be stated that the

Director-General and the staff of the Secretariat shall be exclusively international in character

and they shall not seek or accept instructions from any government or any other authority

external to the WTO (Article VI: 4 WTO Agreement).


(World Trade Organization)


Functions of the World Trade Organization

The WTO is designed to play the role of a watchdog in the spheres of trade in goods, trade in

services, foreign investment, and intellectual property rights amongst others. Article III has

set out the following five functions of WTO –

1. The WTO shall facilitate the implementation, administration and operation and

further the objectives of this Agreement and of the Multilateral Trade Agreements,

and shall also provide the frame work for the implementation, administration and

operation of the multi-lateral Trade Agreements

2. The WTO shall provide the forum for negotiations among its members concerning

their multilateral trade relations in matters dealt with under the Agreement in the

Annexes to this Agreement

3. The WTO shall administer the Understanding on Rules and Procedures Governing

the Settlement of Disputes

4. The WTO shall administer Trade Policy Review Mechanism

5. To ensure the optimum use of world resources

6. With a view to achieving greater coherence in global economic policy making, the

WTO shall cooperate, as appropriate, with the international Monetary Fund (IMF)

and with the International Bank for Reconstruction and Development (IBRD) and

its affiliated agencies

(Chand, 2011)


Objectives of the World Trade Organization

Important objectives of WTO are mentioned below:

1. To implement the new world trade system as visualised in the Agreement;

2. To promote World Trade in a manner that benefits every country;

3. To ensure that developing countries secure a better balance in the sharing of the

advantages resulting from the expansion of international trade corresponding to

their developmental needs;

4. To demolish all hurdles to an open world trading system and usher in international

economic renaissance because the world trade is an effective instrument to foster

economic growth;

5. To enhance competitiveness among all trading partners so as to benefit consumers

and help in global integration;

6. To increase the level of production and productivity with a view to ensuring level

of employment in the world;

7. To expand and utilize world resources to the best;

8. To improve the level of living for the global population and speed up economic

development of the member nations.

(Sinha, 2010)


Agendas of the World Trade Organization

Non-discrimination

International trade is conducted mainly under the rules of the World Trade Organization. Its

non-discrimination rules are of fundamental importance. In essence, they require WTO

members not to discriminate amongst products of other WTO members in trade matters (the

most favoured- nation rule) and, subject to permitted market-access limitations, not to

discriminate against products of other WTO members in favour of domestic products (the

national treatment rule). The interpretation of these rules is quite difficult. Their reach is

potentially so broad that it has been felt that they should be limited by a number of

exceptions, some of which also present interpretative difficulties. Indeed, one of the principal

conundrums faced by WTO dispute settlement is how to strike the appropriate balance

between the rules and exceptions. Davey explores the background and justification for the

non-discrimination rules and examines how the rules and the exceptions have been

interpreted in WTO dispute settlement. He gives considerable attention to whether the

exceptions give sufficient discretion to WTO members to pursue their legitimate non-trade

policy goals.

As mentioned above, the WTO recognised and institutionalised the principle of non-

discrimination embodied in the MFN clause, which was present in GATT as well. According

to the MFN principle, no WTO member country can discriminate against other member

countries. For example, if country X imposes a tariff rate of 5% on steel coming from country

Y, it has to impose the same tariff rate on all imported steel, irrespective of the country of

origin. This non-discrimination principle of the WTO is said to be the cornerstone of the

multilateral trading regime.

However, both GATT and the WTO also recognised certain exceptions to the MFN principle.

Preferential Trading Agreements (PTAs) constitute one such exception, which permits two or

more countries to sign an agreement to form a free trade area where they can provide

preferential access to each other’s products. By signing a PTA, countries would be able to

violate the MFN obligation that they have with other WTO member countries and provide

preferences to countries that are members of the free trade area.Ten years into the WTO

regime this exception appears to have become the rule, while the primary principle of MFN is

becoming an exception.


By the end of 2004, about 300 PTAs had been notified with GATT and the WTO. Of these,

close on 180 came into existence after 1995 -- that is, after the formation of the WTO. In

other words, about 60% of all PTAs in existence today came into effect after the most

remarkable advancement in the multilateral trading regime happened, in 1995. Estimates

suggest that by the end of 2007 the total number of PTAs will be well above the 300 mark.

Today, more than 50% of global trade takes place through PTAs, on a non-MFN basis.

Hence, earlier that was considered an exception has now become the rule. There could be

many reasons for this development.

Industrially developed countries get into PTAs in order to extract benefits that they would be

unable to secure through the multilateral trading regime, such as a more stringent intellectual

property rights regime, as well as rules relating to competition, investment, labour and the

environment. Less economically developed countries are lured into PTAs by the prospect of

getting greater market access. However, the growing number of PTAs has created a

substantial degree of confusion in the global trade regime, bringing in complicated rules and

procedures and creating difficulties for member countries in their administration.(Davey,

2012)

Dispute Settlement

One of the major advancements in the multilateral trading regime that the WTO brought in

was the setting up of a substantive dispute settlement mechanism. This has, so far, worked

well. From 1995 up to the end of 2004, WTO member countries brought 300 complaints to

the Dispute Settlement Body (DSB). The panel formed by the DSB, which is a temporary

judicial body, successfully decided 80 of these cases. About 50 such cases were appealed

with the Appellate Body (AB), a permanent judicial body of the WTO. These figures are

quite remarkable, especially compared to the situation in the pre-WTO era -- from 1948 to

1994. During that period, the settlement of disputes was marked by inordinate delays and

lack of transparency, with any one country able to delay the implementation of the rulings,

and so on. The increasing number of complaints demonstrates the faith that member countries

have in the new dispute settlement mechanism, where disputes are decided according to a

timeframe, with transparent procedures. And no country can block or delay the

implementation of the ruling.


However, the functioning of the DSB within the WTO, over the last 10 years, has also

revealed certain limitations in the system. One major problem is the increasing degree of non-

compliance with the rulings of the DSB by industrially advanced countries and formations

like the United States and European Union.

The DSB does provide for a retaliatory mechanism whereby the winning country can retaliate

against the country that does not comply with its ruling. It is this provision that gives some

teeth to the DSB. The intention behind this mechanism is to ensure that countries comply.

However, a number of cases have demonstrated that the mechanism has not served its

purpose in situations where smaller, economically vulnerable countries are involved in

disputes with larger or economically stronger countries. One such case involved Ecuador and

the United States. In that dispute, the US refused to comply with the ruling of the DSB, which

then authorized Ecuador to retaliate against the US. However, Ecuador did not retaliate

because such retaliation would have brought more harm than good to its economy.

Notwithstanding the remarkable performance of the WTO’s DSB, therefore, the fact that it

has certain lacunae has become clear in the past decade.(Bello, 1996)

Non-tariff Barriers

The WTO came into existence at a time when tariffs – the customs duties that countries levy

on goods entering their country – were very low. The intent of successive rounds of

negotiations under GATT, which led to the formation of the WTO, was to reduce barriers to

international trade. Reduction of tariff barriers was one of the consequences of this process.

Although barriers to international trade in the form of tariffs have come down, other non-

tariff barriers have increased manifold after the formation of the WTO.

These non-tariff barriers exist mainly in the form of food standards, technical requirements,

antidumping duties, etc. Industrially developed countries often impose stricter food

standards on imports from developing countries. These standards are sometimes even stricter

than what is warranted under existing international standards. An interesting trend in the

imposition of non-tariff barriers after the formation of the WTO has been the growing

tendency of developing countries to use these measures. It is important to recall that

antidumping rules represent a remedial tool whereby countries impose additional duties on

imports that are sold in their markets at prices lower than the domestic price of the imported

goods in their country of origin.


A number of agreements deal with various bureaucratic or legal issues that could involve

hindrances to trade include import licensing, rules for the valuation of goods at customs, pre-

shipment inspection: further checks on imports rules of origin and investment measures.

(World Trade Organization)

The Varied Interests and powers of Developing Countries and Special Focus on Least

Developed Countries.

The differences among developing countries and their agriculture sectors manifest

themselves at several levels. Africa and Latin America and the Caribbean, for instance, have

more available arable land per capita than Asian developing countries, but land appears to be

distributed more unequally in Latin America and the Caribbean. Asia and Latin America and

the Caribbean, however, have better infrastructure than Africa. Although all developing

regions have experienced increases in trade of fruits and vegetables, Asia and Latin America

and the Caribbean have been more dynamic oilseed exporters. Africa has been losing export

market share in world agricultural markets. Latin America and the Caribbean is a net

agricultural exporter, Asia became a net importer in the early 1970s, and Africa, which had a

strong positive agricultural balance in the 1960s and 1970s, has experienced deficits since

the early 1980s. The direction of trade also varies. Asian countries trade mainly within the

region; Latin American and Caribbean countries trade with Europe, the United States, and

other countries within the region; and Africa trades mostly with Europe.

An IFPRI study using cluster analysis also showed the large differences in food security

status among developing countries. Those countries appear scattered across nearly all levels

of food security and insecurity, although none appear in the very high food-secure group.

Among food-insecure countries, the profiles also differ: some are predominantly rural

(mostly in Africa and South Asia) whereas for others the urban population is more important

(like many countries in Latin America and the Caribbean and in transition economies).

Obviously the same policy (such as maintaining high prices for producers) will have

different impacts in these two types of countries. Some countries are food insecure mostly

because of low levels of calories and proteins per capita, although they do not use large

percentages of their exports to buy food. In the terminology of the study, these countries are

“consumption vulnerable” but not “trade stressed.” Other food-insecure countries are a

mirror image: they appear trade stressed (using a large percentage of their exports to buy

food) but less consumption vulnerable (their current levels of calories and proteins per capita


are close to the average for all countries considered). Again, the policy options for these two

types of countries are different: the first group may increase imports to improve availability

of calories and proteins, whereas increasing imports may not be an option for the second

group. The different positions taken by developing countries in the Doha Round negotiations

reflect this heterogeneity.

The Cairns Group (an alliance of agricultural exporting countries that includes 3 developed-

country and 14 developing-country members) has mainly emphasized playing offense. It is

interesting to note that, although the Cairns Group is usually perceived as encompassing

countries that are large commercial exporters, in fact 3 countries in this group are in food-

insecure clusters. Other developing countries have emphasized a defensive approach

advocating additional levels of support and protection for developing countries (such as the

11 WTO members, including Cuba, the Dominican Republic, Pakistan, Sri Lanka, and

others, that presented those proposals under the general name of a “Development Box”)

while also asking for a reduction in subsidies and protection in industrialized countries. Still

other countries are trying to coordinate both approaches. India is an interesting case. On the

one hand, playing offense seems reasonable for a country that in the past few years has

emerged as one of the world’s top net exporters of agricultural products. On the other hand,

a large percentage of India’s poor population lives in rural areas. Concerns about possible

negative impacts on the rural poor have therefore underpinned the defensive components in

India’s WTO proposal, embedded in the notion of a Food Security Box (with proposals for

additional levels of support and protection comparable to the Development Box).

Acknowledging that heterogeneity, we may still make some general points. As indicated, a

dynamic agricultural sector is crucial in developing countries, particularly the poorest ones,

and research has shown that agricultural exports appear to be associated with higher levels

of growth. Higher growth, if it is broad based and stable, in turn helps reduce poverty.

Conversely, closed economies relying on the dynamics of small domestic markets tend to

show slower and more halting growth rates. If countries follow their comparative advantage,

international trade by labor-abundant, poor developing countries should increase employment

and wages, further alleviating poverty. To the extent that poverty is the main cause of food

insecurity, international trade opportunities should also help improve food security. The

expansion of trade in goods and services over the past decades, along with the decline in food

prices resulting from technological advances, has led to sharp reductions in the size of the


total food bill of developing countries as a share of total export earnings. Of course,

differences in agricultural food production and export performance by developing countries

depend on several factors, such as income and population growth, natural resource base and

climate, and technological progress; but economic policies, in both industrialized and

developing countries, also have a major impact.(Jawara & Kwa, 2009)

The WTO legal framework and the current negotiations are crucial precisely because of their

likely effects on trade and agricultural policies worldwide. When considering negotiating

positions from the point of view of the developing countries, it is important to analyze their

policies separately from those of the industrialized countries.

In addition, the least developed countries receive extra attention in the WTO. All the WTO

agreements recognize that they must benefit from the greatest possible flexibility, and better-

off members must make extra efforts to lower import barriers on least developed countries

exports.

Since the Uruguay Round agreements was signed in 1994, several decisions in favour of least

developed countries have been taken. The WTO ministers agreed in Singapore in 1996 on a

“Plan of Action for Least Developed Countries”. This includes technical assistance to enable

them to participate better in the multilateral system and a pledge from developed countries to

improve market access for least developed countries products.

A year later in October 1997, six international organizations- the International Monetary

Fund, the International Trade Centre, the United Nations Conference for Trade and

Development, the United Nations Development Program, the World Bank and the WTO

launched the “Integrated Framework”, a joint technical assistance programme exclusively for

least developed countries.

In 2002, the WTO adopted a work programme for least developed countries. It contains

several brand elements: improved market access, more technical assistance, support for

agencies working on the diversification of least developed countries economies, help in

following the work of WTO and a speedier membership process for least developed countries

negotiating to join the WTO.

At the same time, more and more member governments have unilaterally scrapped import

duties and import quotas on all exports from least developed countries.(Rena, 2012)


Policy Options for Developing Countries

Although eliminating welfare-reducing policies in rich countries should be paramount in

these negotiations, at the same time developing countries need to carefully consider their own

agricultural policies. For years many of them have discriminated against agriculture, and

although the most obvious macroeconomic biases may be gone, many countries still do not

invest enough in agriculture and rural development.

Several developing countries have expressed concern that further trade liberalization could

create problems for their large and predominantly poor agricultural populations. Poor

countries have argued for a slower pace in reducing their own tariffs on the premise that

industrialized countries should first eliminate their higher levels of protection and

subsidization.

A related concern has been how to protect the livelihoods of poor producers from sudden

negative impacts resulting from unfair trade practices such as subsidized exports and from

import surges. While insisting on a rigid sequence in which developed countries first

eliminate all their own distortions seems a sure recipe for stalemate, developing countries

seem justified in asking for significant down payments in the reduction of protection and

subsidies in industrialized countries.

Also, food-insecure and vulnerable countries need (1) longer transition times that must be

used to implement adequate rural development and poverty alleviation strategies, and (2)

simplified and streamlined instruments to confront unfair trade practices and import surges

that may irreparably damage the livelihoods of small farmers.

In particular, in the context of the negotiations it is important to clarify the possible use by

developing countries of other trade remedies against domestic and, especially, export

subsidies of industrialized countries. Some observers, however, have argued for maintaining

high levels of agricultural protection in developing countries, or even increasing it further, as

a way of reducing poverty and promoting food security. Sometimes this suggestion is

accompanied by the argument that protection “does not cost money” and is easier to

implement than subsidies in poor countries. Yet contrary to the common perception that

protection is a tax paid by foreigners and collected by governments, much of the implicit tax

is paid by domestic consumers and collected privately by producers in the form of higher

prices. This tax on food has an obvious negative impact on poor households, which in many


developing countries spend more than half of their income on food, and is mainly received by

bigger agricultural producers with larger quantities of products to sell.

Landless rural workers, poor urban households, and many poor small farmers tend to be net

buyers of food. The problems faced by poor farmers and poor consumers are better addressed

through policies and investments targeted to them directly. The focus should therefore be on

vulnerable groups rather than on crops.

The best approach for developing countries is to eliminate biases against the agricultural

sector in their general policy framework and to maintain a neutral trade policy that reduces

protection over time. They should use transition periods negotiated in the WTO to increase

investments in human capital, land tenure, water access, technology, infrastructure,

nonagricultural rural enterprises, organizations of small farmers, and other forms of social

capital and political participation for the poor and vulnerable. None of these policies is

constrained under the WTO Agreement on Agriculture. The claims that more protection is

necessary to shelter small farmers would ring hollow if the current underinvestment in rural

development and poverty alleviation in developing countries continues.

More investments targeted to the poor and vulnerable also require additional financial

resources from the international community. Industrialized countries can help by agreeing to

significantly reduce their own protectionism and subsidies in the current trade negotiations,

while simultaneously making sure there is increased funding by international and bilateral

organizations for rural development, poverty alleviation, and health and nutrition

interventions. At the same time, governments in developing countries should support

macroeconomic stability, good governance, and peace, if they want to overcome poverty and

hunger. Without addressing these other key factors, any modification in the WTO agreements

will have limited benefits.(Rena, 2012)


Provisions by the World Trade Organization

Provisions tosafeguard the interests of developing countries

The Anti-Dumping Agreement provides that special regard must be given by the developed

country Members to the special situation of developing country Members when considering

the application of anti-dumping measures. The Agreement also stipulates that constructive

remedies provided for by the Agreement must be explored before applying anti-dumping

duties where they would affect the essential interests of developing country Members.

The Agreement on Subsidies and Countervailing Measures calls for any countervailing duty

investigation of a product originating in a developing country Member to be terminated as

soon as the authorities concerned have determined that:

1. The overall level of subsidies granted upon the product in question does not exceed

2 per cent of its value calculated on a per unit basis

2. The volume of subsidized imports represents less than 4 per cent of the total imports

of the like product in the importing Member, unless imports from developing country

Members whose individual shares of total imports represent less than 4 per cent

collectively account for more than 9 per cent of the total imports of the like product in

the importing Member

The Agreement on Safeguards provides that safeguard measures shall not be applied against a

product originating in a developing country Member as long as its share of imports of the

product concerned in the importing Member does not exceed 3 per cent, provided that

developing country Members with less than 3 per cent import share collectively account for

not more than 9 per cent of total imports of the product concerned.

The TBT Agreement provides that in the preparation and application of technical regulations,

standards and conformity assessment procedures, members must take account of the special

development, financial and trade needs of othermembers.(World Trade Organization)

Provisions allowing flexibility to Developing Countries in the use of Policy Instruments

WTO has provided for certain provisions which allow flexibility to developing countries in

the use of economic and commercial policy instruments. The following is an illustrative list

of such provisions:


The Agreement on Agriculture provides that:

1. Investment subsidies which are generally available to agriculture, agricultural input

subsidies generally available to low-income or resource-poor producers, and support

to producers to encourage diversification from growing illicit narcotic crops are

exempt from domestic support reduction commitments

2. The de minimis percentage of Aggregate Measurement of Support (AMS) under

which no reduction need be made either for product specified or non-specific

measures is 10 per cent as against 5 per cent for developed country Members

3. The requirements to reduce budgetary outlays for export subsidies and the quantities

benefitting from such subsidies are 24 and 14 per cent respectively, as against the

requirements for the developed countries to reduce by 36 and 21 per cent respectively.

4. During the implementation period, no reduction commitments need be undertaken in

respect of market and freight subsidies or internal transport subsidies on export

shipments.

5. Special and differential treatment in respect of commitments has been provided as set

out in the relevant provisions of the Agreement and embodied in the Schedules of

concessions and commitments. In the Schedules the developing country Members

with a total AMS have had to make reductions by 13.33 per cent as against 20 per

cent for the developed country Members. Similarly the simple average reduction of

tariff for the developing country Members was only by 24 per cent (subject to a

minimum of 10 per cent) as against 36 per cent (subject to a minimum of 15 per cent)

for the developed country Members.

6. The provision of foodstuffs at subsidized prices with the objective of meeting food

requirements of urban and rural poor in developing countries is not to be considered

to be a domestic support programme subject to reduction commitment.

Consequently it is provided that developing country Members are not to be expected to use

international standards as a basis for their technical regulations or standards, including test

methods, which are not appropriate to their development, financial and trade needs.

The TBT Agreement recognizes that, in their particular technological and socio-economic

conditions, developing country Members adopt certain technical regulations, standards or

conformity assessment procedures aimed at preserving indigenous technology and production

methods and processes compatible with their development needs.


GATS provides that in the negotiations for specific commitments in the process of

liberalization, there shall be appropriate flexibility for individual developing country

Members for opening fewer sectors, liberalizing fewer types of transactions, progressively

extending market access in line with their development situation and, when making access to

their markets available to foreign service suppliers, attaching to such access conditions aimed

at achieving the objectives of increasing their participation in world trade.(World Trade

Organization)

Provisions allowing longer transition periods to Developing Nations

The Agreement on Agriculture provides that developing country Members have the

flexibility to implement reduction commitments over a period of up to ten years as against six

years for developed country Members. The least-developed country Members do not have to

make any reduction commitments.

The TRIMs Agreement requires developing country Members to eliminate all TRIMs

notified under Article 5.1 within 5 years and the least developed country Members within

7 years as against 2 years for developed country Members. There is provision also for

extending the transition period for developing and least-developed country Members.

The Agreement on Customs Valuation permits developing country Members, not parties to

the corresponding Tokyo Round Agreement, to delay the application of the provisions of the

Agreement for a period not exceeding five years. The Agreement also provides for

sympathetic consideration of requests for extension of the transitional period.

The Agreement on Customs Valuation also gives the possibility to developing country

Members which currently value goods on the basis of officially established minimum values

to make a reservation to enable them to retain such values on a limited and transitional basis

under such terms and conditions as may be agreed.

The Agreement on Subsidies and Countervailing Measures provides that a developing

country which is not a least-developed country or a country with per capita income of less

than USD 1000 per annum shall have eight years to phase out prohibited export subsidies.

The Agreement also provides for a transitional period of five years for all developing country

Members and of seven years for the least-developed country Members during which the


prohibition of Article 3.1 (b) on subsidies contingent upon the use of domestic over imported

goods does not apply.(World Trade Organization)

Provisions for Technical Assistance

Many agreements provide for technical assistance to developing countries. In particular such

provisions exist in the agreement on SPS Measures, the Agreement on TBT, the Agreement

on the Implementation of Article VII (Custom Valuation) and the Agreement on TRIPS.

Technical assistance may be given to developing country members or under the technical

cooperation program of the WTO Secretariat.(World Trade Organization)


Limitations of the World Trade Organization

Ten years ago, a new World Trade Organisation that put developing country needs at the\

center of the international trade negotiation agenda was proposed. The Ministerial

Declaration adopted at the start of the Doha Development Round of trade negotiations, on

14 November 2001, was a promising response to the anti-globalization riots of the 1990s.

But the WTO membership has failed to deliver the promised pro-development changes.

Finding "development" in the Doha Development Round today is like looking for a needle

in a haystack. Developing countries have been completely sidelined by the economic and

political interests of global powers. According to the Guardian1, here are 10 examples of

how the WTO has failed the poor:

1. Cotton: The Fair trade Foundation revealed last year how the $47bn in subsidies paid

to rich-country producers in the past 10 years has created barriers for the 15 million

cotton farmers across west Africa trying to trade their way out of poverty, and how 5

million of the world's poorest farming families have been forced out of business and

into deeper poverty because of those subsidies.

2. Agricultural subsidies: Beyond cotton, WTO members have failed even to agree how

to reduce the huge subsidies paid to rich world farmers, whose overproduction

continues to threaten the livelihoods of developing world farmers.

3. Trade agreements: The WTO has also failed to clarify the deliberately ambiguous

rules on concluding trade agreements that allow the poorest countries to be

manipulated by the rich states. In Africa, in negotiations with the EU, countries have

been forced to eliminate tariffs on up to 90% of their trade because no clear rules exist

to protect them.

4. Special treatment: The rules for developing countries, called "special and differential

treatment" rules, were meant to be reviewed to make them more precise, effective and

operational. But the WTO has failed to work through the 88 proposals that would fill

the legal vacuum.


5. Medicine: The poorest in developing countries are unable to access affordable

medicine because members have failed to clarify ambiguities between the need for

governments to protect public health on one hand and on the other to protect the

intellectual property rights of pharmaceutical companies.

6. Legal costs: The WTO pledged to improve access to its expensive and complex legal

system, but has failed. In 15 years of dispute settlement under the WTO, 400 cases

have been initiated. No African country has acted as a complainant and only one least

developed country has ever filed a claim.

7. Protectionist economic policies: One of the WTO's five core functions agreed at its

inception in 1995 was to achieve more coherence in global economic policy-making.

Yet the WTO failed to curb the speedy increase in the number of protectionist

measures applied by G20 countries in response to the global economic crisis over the

past two years – despite G20 leaders' repeated affirmations of their "unwavering"

commitment to resist all forms of protectionist measures.

8. Natural disaster: The WTO fails to alleviate suffering when it has the opportunity to

do so. In the case of natural disaster, the membership will have taken almost two

years to agree and implement temporary trade concessions for Pakistan, where severe

flooding displaced 20 million people in 2010 and caused $10bn of damage. Those

measures, according to the International Centre for Trade and Sustainable

Development, would have boosted Pakistan's exports to the EU by at least €100m this

year.

9. Decision-making: The WTO makes most of its decisions by consensus – and

achieving consensus between 153 countries is nearly impossible. But this shows

another failure of the WTO: to break the link between market size and political weight

that would give small and poor countries a voice in the trade negotiations.

10. Fair trade: 10 years after the start of the Doha Development Round, governments have

failed to make trade fair. As long as small and poor countries remain without a voice,


the role of campaigning organizations, such as Tradecraft, which are working together

to eliminate cotton subsidies, will remain critical.(Walker, 2011)

Developing Countries have low power in the WTO Framework

The reasons are –

1. While developing countries make up two-thirds of WTO membership and by their

vote can in theory influence the agenda and outcome of trade negotiations, the reality

is that developing countries have never used this to their advantage. Most developing

country economies are one way or another dependent on US, EU and Japan in terms

of imports, exports, aid, security etc. They usually consider their obstruction of a

consensus at the WTO too much of a threat to their overall well-being and security.

Hence while many countries may be opposed to an agreement, as was the case with

the Trade Related Intellectual Property Rights Agreement (TRIPS) concluded in the

Uruguay Round, developing countries did not eventually obstruct its conclusion.

2. Trade negotiations are based on the principle of reciprocity or ‘trade-offs’. That is,

one country gives a concession in an area, such as the lowering of tariffs for a certain

product, in return for another country agreeing to sign on to a certain agreement. This

type of bartering benefits the large and diversified economies since they can ‘get more

by giving more’. Hence the disparity between those who can give and those who

cannot, or only a little is increased. The stronger members accrue benefits, while the

weaker ones have their interests sidelined. In fact, it is known in WTO circles that

developing countries almost never barter for benefits, but usually relent to the

requests of the developed countries. For the most part, negotiations and trade-offs take

place between the developed countries, and some of the richer or larger developing

countries.

3. Developing countries have fewer human and technical resources and therefore often

enter negotiations less prepared then their developed country counterparts.

4. Developing countries have discovered that finding recourse in the dispute settlement

system is costly and requires a level of legal expertise which they may not have.

Furthermore, the basis on which the system is run - whether a country is violating free

trade rules - is not the most appropriate for their development needs.(Khor, 2006)


For most developing countries, WTO agreements bring negative consequences because they

foreclose a wide range of development options. Through the agreements, governments give

up their power to control their domestic economies and set their development priorities.

(World Trade Organization, 2011)


Conclusion

WTO has failed to live up to its promises over the past decade, which reveals a wider

systematic problem in the global community. True and lasting solutions to global economic

problems can only come when the model of global competitiveness between countries

become one of genuine cooperation.

However, the journey so far in redeeming the development promise of Doha has been full of

broken promises and missed deadlines, including the July 2005 deadline and beyond. This

setback follows on the heels of the important breakthrough in the negotiations attained in July

2004 package with regards to development issues. The lack of substantive motive is evident

in almost all areas of development matters, including that concerning special and differential

treatment, implementation, specific trade related needs and concerns of developing countries

and to a lesser extent, technical assistance. Will mainstream development into the WTO be a

myth or a fact that can be realised to meet the expectations of developing countries? Can the

developmental promises of the Doha, which are timely and crucial and deserve to be fully

redeemed, be translated into concrete steps in the period leading to the further WTO

conferences.


References

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