The WTO and the Doha Development Agenda

Background

World Bank, April 25-26, 2005

Origins of the Multilateral Trading System

Origins of the Multilateral Trading System

• Pre-WWII trade relations

• The post-war design: a multilateral focus

• The Havana Charter - ITO

• The ITO is still-born

• Side negotiations on tariffs - GATT

• Establishment of the GATT in 1948

• From GATT to WTO in 1995

Objectives of the WTO

• Raising standards of living• Ensuring full employment• Ensuring a large and steadily growing volume of real

income and effective demand• Expanding the production of and trade in goods and

services, while allowing for the optimal use of the world’s resources

• … seeking both to protect and preserve the environment and to enhance the means for doing so in a a manner consistent with the respective needs and concerns of Parties to the Agreement at different levels of economic development

Structure of the WTO

• Ministerial Conference• General Council + DSB + TPR (Appellate Body)

• Councils on Goods, Services and TRIPS

• Committee on Trade and Development

• Subordinate Committees

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• Negotiating Structure

Functions of the WTO

• Forum for negotiations:– further trade liberalization– adjustment and introduction of new rules

• System for administering trade rules

• Mechanism for settling trade disputes among Members

The WTO and Negotiations

• Geneva 1947 (23 participants)• Annecy 1949• Torquay 1950• Geneva 1956• Dillon Round 1960-61• Kennedy Round 1964-67 (60 participants)• Tokyo Round 1973-79 (99 participants) • Uruguay Round 1986-93 (123 participants)• Doha Round 2001- (over 140 participants)

Post-1995 Ministerials

• Singapore 1996 (Singapore issues, plan of action for LDCs, ITA)

• Geneva 1998 (electronic commerce, implementation)

• Seattle 1999 (battle of Seattle)• Doha 2001 (launch of Doha Round)• Cancún 2003 (failed mid-term review)• Hong Kong, China 2005 (wait and see)

Rules and Conventions

Basic Rules• Non-discrimination plus exceptions (MFN and NT)• Tariffs alone• Contingency protection• Subsidies• Standards• General exceptions• TransparencyConventions• Reciprocity and Non-reciprocity• Consensus

The Economic Rationale of GATT/WTO Rules

• The economics of non-discrimination• The political economy of non-

discrimination• Price-based versus quantity-based

instruments• Pre-commitment, greater policy certainty• The role of information (transparency)• Reciprocity and mercantilism

Non-discrimination: A Rule with Many Exceptions

• Exceptions to MFN and their economic rationale

– Regional agreements

– Trade preferences

– Special and differential treatment

Regionalism

• Types of agreement

• RTAs have proliferated

• Basic WTO rules

• Why has regionalism become more attractive?– Economic arguments, but downside risks– Political factors

Trade, Development and the WTO

• Defining national economic policies• Why accept international constraints on

national policies?– Advantages of reciprocity– Transaction costs– Predictability, security of access– Rule of law– Discipline at home

Developing Countries and GATT/WTO

• A brief history:– Phase 1 (up to 1973)

– Phase 2 (the Tokyo Round, 1973-79)

– Phase 3 (up to 1995)

– Phase 4 (post-1995)

Components of S&D

• Market access for exports

• Increased flexibility to restrict imports

• Additional freedom to subsidize exports

• Postponing application of rules

S&D: Where to go next

• Current impasses• Can we distinguish between core obligations

and others? • Resource-intensity and development-relevance

of some rules.• Phase-in? • Opt-in, opt-out?• Soft law and consultation processes?• How to address graduation.

Subsidies• Agreement on Subsidies and Countervailing Measures

– Definition of subsidy: prohibited, actionable and non-actionable– Concept of specificity– Financial contribution, or any form of price support or income support and

a benefit is conferred– Developing country provisions on export subsidies– TRIMS elimination (2, 5 and 7 years)

• Provision for review of actionable and non-actionable categories of subsidy

– Review foreseen before the end of 1999 to determine whether to continue or modify the provisions. There was no consensus and the provisions have lapsed, so all subsidies are either prohibited or actionable

Subsidies (cont.)

• Justifications: externalities, alignment of social/private costs/benefits – eg. labour market rigidities, infant industries, small firms

• Governments might act for distributive reasons• A subsidy is superior to a tariff because of absence of consumption

costs• Political economy considerations: does the government have

adequate information, are “technical” not political decisions made?• Subsidies cost money and are likely to be used with more restraint

than taxes.• Subsidies are more visible and make governments more

accountable

Contingency Trade Policy: Countervailing and Antidumping Duties

• Subsidies and Countervailing Measures Agreement

– Countervailing duties may be applied subject to a range of procedural requirements when the subsidy in question is causing injury

– De minimis threshold of less than 1% or negligible import volumes

– Undertakings of voluntary restraint foreseen

– Procedures to be completed in one year or exceptionally 18 months

– Duties to be discontinued after 5 years (sunset) unless problem persists

• Agreement on Antidumping measures

– Antidumping measures may be applied when sales are made at less than normal value (i.e. at a lower price than that for a like product in the domestic market) and cause injury; a range of procedures to be followed

– De minimis thresholds of 2% dumping margin or when volume (normally less than 3% from one country) is negligible

– Undertakings foreseen

– Procedures to be completed in one year or exceptionally 18 months

– Duties to be discontinued after 5 years (sunset) unless problem persists

Contingency Trade Policy: Safeguards

• Agreement on Safeguards– Elimination of Article XIX measures– Safeguard measures can be taken when a product is being

imported in such increased quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten serious injury to a like or directly competitive product

– Preliminary determination is enough to act upon in critical circumstances

– Quantitative restrictions may be applied– In principle, MFN should apply to actions, duration should not

last more than 4 years, extendable to 8 years if necessary and if industry is adjusting

– No compensation required for three years if action results from absolute increase in imports

Contingency Protection (cont.)

• Antidumping – price discrimination, not predation; cyclical factors, scale economies in early phases, creating markets

• Link to own trade policy• Difficulties of establishing causality• Methodological opportunism• Superiority of safeguards over antidumping

Standards• Agreement on Technical Barriers to Trade

– Distinction between technical regulations and standards– Provenance GATT Arts. III, X and XX – No more restrictive than necessary and no disguised trade restrictions – Non-discriminatory (MFN and NT)– Reference to “legitimate objectives”– Issues relating to PPMs– Presumption in favour of international standards for technical regulations– Voluntary standards, Code of Good Practice, also presumption in favour of

international standards– Conformity assessment non-discriminatory and based on international

guidelines or recommendations: accept exporting country assessment if equivalent

– Mutual recognition encouraged, based on non-discrimination– Transparency: national enquiry points

Standards (continued)

• Agreement on Sanitary and Phytosanitary – An SPS measure is imposed: to protect animal or plant life or

health from risks arising from: a) entry establishment or spread of pests, diseases etc.; b) from additives, contaminants, toxins etc. in food, beverages or feedstuffs; and c) diseases carried by animals, plants or products thereof

– Many provisions similar to TBT– Reliance on international standards, guidelines or

recommendations unless science suggests otherwise– SPS measures must be based on scientific principles, including

in relation to risk. Risk assessment should be consistent across products. Precautionary principle plays a role.

Standards: Economic Considerations

• A standard can be defined: “for common and repeated use, rules, guidelines or characteristics in respect of activities or their results”

• Technical regulations and standards (TRS) should improve welfare in situations where there is a market imperfection:

– Asymmetric information (need/right to know)– Uncertainty (precautionary principle)– Market power (abuse of dominant position)– Externalities in production or consumption (e.g. regulations on pollution)

• Other features of standards:– Public good characteristics (shared knowledge)– Efficiency contribution (reduce transaction costs, and network externalities

– measurement, traffic rules)• But, standards can be used to abuse market position, directly via anti-

competitive behaviour, or through lobbying and capture• Similarly in trade, standards and conformity procedures as

protectionism • Harmonization versus regulatory competition

Dispute Settlement

• Unique system: an alternative to diplomatic settlement of disputes; built on mutual interest – repeated game – but needs to be seen as equitable and effective

• Premise for complaint is nullification or impairment of previous commitment, or impairment of attainment of an objective of the WTO

• Three kinds of complaints:– Violation– Non-violation (unexpected, changing conditions of

competition)– Any other situation

Evolution of Dispute Settlement System

• GATT system revamped in the Uruguay Round. Problems with blocking panel establishment, delay tactics, blocking of adoption of reports; more than 90% cases worked well, but growing problem in 1980s

• Dispute Settlement Understanding in UR:– Elimination of blocking opportunities– Procedural time limits– Standard terms of reference for panels– Appeals process– Increased surveillance of implementation of panel reports and

Appellate Body findings– Automaticity in approval of retaliation in cases of non-

compliance• Post-UR: Greater use of dispute settlement, especially

by developing countries (involved in 30% of all cases)

Dispute Settlement: Some Outstanding Issues

• Dispute settlement as negotiation• Dispute settlement as law-making• Only governments have standing – what prompts cases: country

size, other factors?• Settlement by bilateral means (how, what outcomes?)• Remedies: call for compliance, but advantages of specific proposals

for remedies (not always forthcoming) because perception of inadequate remedy/compliance can only be challenged by bringing another case

• Generally no compensation for damages (Australia case)• Enforcement capacity – who has effective power to retaliate?• Resource costs – Advisory Centre on WTO Law, but problem is real• Transparency – amicus briefs and participation by NGOs