chapter 1 wto 1

8/11/2019 Chapter 1 WTO 1

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COURSE OUTLINE

Book Titled

WTO and Multilateral Trading System

PAST, PRESENT AND FUTURE

By

Mr Lal Das


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COURSE OUTLINE

Chaptert#1

THELONG STRIDE:FROM HAVANA TO DOHA

Chaptert#2

MAIN FEATURES OF GATT/WTO Chaptert#3

IMPLEMENTATION AND IMPLICATION

Chaptert#4

NEW ISSUES IN THE WTO

Chaptert#5WTO PROCESSES

Chaptert#6

TOWARDS THE FUTURE

ALL ABOVE CHAPTERS ARE INCLUDED IN YOUR COURSE

(TERMINAL EXAM: TWO QUESTIONS FROM EACH CHAPTER)


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CHAPTER # 1

Important Questions

Q1: Why there was need to create anInternational Trade Organization?

Q2: Discuss objectives and Functions of WTO?Q3: What are the Institutional Implications of

TRADE Rounds? Discuss?Q4: Discuss main features of Toyko Round?Q5: Discuss main features of Uruguey Round?Q6: Discuss Importance of DOHA Ministerial

conference 2001?


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Q7: WTO is widely criticized as A Vehicle

for Developed Countries Interest

Comment?


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3. GATT anD WTO have helped to create astrong and prosperous Trading system

which have contributed to theunprecedented growth of InternationalTrade.


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Objective and Functions of WTO

OBJECTIVE:

The WTOs over riding objective is to help

trade flow smoothly, freely, fairly andpredictably.

Functions of WTO:

1. Administering Trade Agreements.2. Acting as a Forum for Trade

Negotiations.


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3. Reviewing National Trade Policies ofmember countries.

4. Assisting Developing countries in TradePolicy Issues Through Technical assistanceand Training Programmes.

5. Co- operating with other International

Organizations6. Settling Trade Disputes between member

countries.


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World Trade Organization (WTO)

The Long Stride: from Havana to Doha

Various phases contain almost half century from GATT (GeneralAgreement on Tariffs & Trade) to WTO

Absorbed some changes & ignored some, But Basic character & features remained same---became a weakness to

contemporary world economic system

Foundation:

Earlier work started in 1947

Formally founded in 1948 through a conference convened by UNOInternational Conference on Trade & Employment (Havana)under ECOSOC

Plan to establish an International Trade Organization


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Areas Covered:

Tariffs Discipline on Import & Export

Employment Economic Development Restrictive Business Practices Commodity Issues

Charter Signing: A controversy Signed by all participants but USA refusal to ratify Uncertainty due to US non-ratification led to dysfunctional aspect

of the organization Still, a landmark in International Trade Finally signed on October 30, 1947.


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Background Objectives for Organization

1) Extensive devastation in post WII..

Economies damaged

Heavy loss of infrastructure & industries

New World Order: more inclined towards economicinterdependence

Phenomena of Economic Growth2) Great Depression of 1920s-30s

A world wide economic depression Europe under tremendous Economic strain Started in 1929US origin

Sudden devastating collapse of US Stock Market Prices Fall in Stock Price led to Stock Market Crash (known as

Black Tuesday)


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Causes of Great Depression

1) Structural weaknesses;

a) Massive Bank failures

b) Stock market crash

c) Inefficient Monetary Policiesd) British decision to return to the Gold Standard

e) Economic Recession

f) Large-scale loss of confidence in investment & consumption

2) Burden of IWW;

a) loss in world warb) Western European countries insistence on reparation from

defeated countries

c) Reparation caused economic strain on defeated countries


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d) Reparations caused economic strain on the defeatedcountries

e) US insistence to repay loans from victorious nations; caused

heavy burden3) Countries became Inward-looking

a) Self-centered economic policies were followed by all thecountries irrespective of others concern

b) Trade barriers increased

c) Control on direct Import through high tariffs & barriers


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Effects of Great Depression

a) Devastating effects in every country irrespective of rich

& poor

a) Personal Income, Tax Revenue, Profits & Prices

droppeda) International Trade effected

b) 25% unemployment rose in USA

c) Cities dependent on Heavy Industries were hit hard

d) Construction in many countries was halted

e) Automobile sales declinedf) Farming & Rural Areas got suffered

g) Crops Prices fell by 60% approximately


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Important Milestones of GATT

Several Rounds of Multilateral Trade Negotiations (MTN):

1) Geneva Round-1947 Signing of GATT Tariff Reduction as a basic Objective

2) Annecy Round - 1949 The second round took place in 1949 in Annecy, France. 13 countries took part in the round. The main focus of the talks was more tariff reductions, around

5000 in total.3) Torquay Round - 1951

The third round occurred in Torquay, Englandin 1950
http://en.wikipedia.org/wiki/Annecyhttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Torquayhttp://en.wikipedia.org/wiki/Englandhttp://en.wikipedia.org/wiki/Englandhttp://en.wikipedia.org/wiki/Torquayhttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Annecy


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Participated by 38 countries 8,700 tariff concessions were made

4) Geneva Round 1955-1956 The fourth round returned to Genevain 1955 and lasted until

May 1956. Twenty-six countries took part in the round. $2.5 billion in

tariffs were eliminated or reduced.5) Dillon Round 1960-1962

The fifth round occurred again in Genevaand lasted from1960-1962

The talks were named after U.S. Treasury Secretary and formerUnder Secretary of State, Douglas Dillon

reduced over $4.9 billion in tariffs Creation of European Economic Community(EEC).
http://en.wikipedia.org/wiki/Genevahttp://en.wikipedia.org/wiki/Genevahttp://en.wikipedia.org/wiki/Douglas_Dillonhttp://en.wikipedia.org/wiki/European_Economic_Communityhttp://en.wikipedia.org/wiki/European_Communityhttp://en.wikipedia.org/wiki/European_Communityhttp://en.wikipedia.org/wiki/European_Economic_Communityhttp://en.wikipedia.org/wiki/Douglas_Dillonhttp://en.wikipedia.org/wiki/Genevahttp://en.wikipedia.org/wiki/Geneva


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6) Kennedy Round - 1964-1967

The level of Tariffs went down nearly 10%

Negotiations mainly among developed countries

7) Tokyo Round - 1973-1979

Reduced tariffs and established new regulations

aimed to control the proliferation of non-tariff barriers andvoluntary export restrictions.

Attended by 102 countries, Concessions were made on $190billion worth.


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8) Uruguay Round - 1986-1994

began in 1986, it was the most ambitious round to date

expanded GATT to important new areas such as services,

capital, intellectual propertyRights (IPRs), textiles, andagriculture

Trade Outcomes of MTNs:

Trade Liberalization

Benefits of Tariff reduction visible in developed countries

Trade expansion

Internationalization of Trade
http://en.wikipedia.org/wiki/Service_%28economics%29http://en.wikipedia.org/wiki/Capital_%28economics%29http://en.wikipedia.org/wiki/Intellectual_propertyhttp://en.wikipedia.org/wiki/Textileshttp://en.wikipedia.org/wiki/Agriculturehttp://en.wikipedia.org/wiki/Agriculturehttp://en.wikipedia.org/wiki/Textileshttp://en.wikipedia.org/wiki/Intellectual_propertyhttp://en.wikipedia.org/wiki/Capital_%28economics%29http://en.wikipedia.org/wiki/Service_%28economics%29


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Disadvantages:

Besides achievements, certain short comes;

Tariff Interest disparity in Import & Export products to

developed and the developing countries

Tariff Escalation in the developed countries on severalproduct chains

Tariff Escalation

A situation where the import dutiesoncomponentsor raw materialsare lowest, and move

progressively higher on semi-finished goodsupwardsto the finished goods.

higher tariffs on products that incorporate higher processing
http://www.businessdictionary.com/definition/import-duty.htmlhttp://www.investorwords.com/9376/cut_down_on.htmlhttp://www.businessdictionary.com/definition/component.htmlhttp://www.businessdictionary.com/definition/raw-material.htmlhttp://www.investorwords.com/10366/move.htmlhttp://www.businessdictionary.com/definition/goods.htmlhttp://www.investorwords.com/11441/upward.htmlhttp://www.businessdictionary.com/definition/finished-goods.htmlhttp://www.businessdictionary.com/definition/finished-goods.htmlhttp://www.investorwords.com/11441/upward.htmlhttp://www.businessdictionary.com/definition/goods.htmlhttp://www.investorwords.com/10366/move.htmlhttp://www.businessdictionary.com/definition/raw-material.htmlhttp://www.businessdictionary.com/definition/component.htmlhttp://www.investorwords.com/9376/cut_down_on.htmlhttp://www.businessdictionary.com/definition/import-duty.html


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Impact of Tariff escalation in Developing countries

Discourages the export of higher processed products

Hinder the development of higher processing industries in thedeveloping countries

A hurdle into the upgradation on industrial activities

Significance of Uruguay Round:

The Uruguay Round (1986-94) saw a shift in North-South politicsin the GATT-WTO system

Larger participation of developing countries during the round different alliances developed, depending on the

issues


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organizing alliances by developing countries such as the AfricanGroup (AG) and the Least-Developed Countries Group (LDCs).

Developing Countries participation into Negotiations:

Solid Grounds:1) various developing countries started joining GATT

2) Upto Kennedy Round, talks were restricted mainly to TariffReduction

No much concern visible of developing countries3) 1980strade expansion led to higher expectations of developed

countries from the developing countries


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Developed Countries Developing Countries

Demand significant Concessions To enhance their

from developing countries in tariff participation in& non-tariff areas International Trade

To access raw material in South Defending their owninterest in internationaltrade system


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Lower Tariffs on the Mutual Interest Products:

Lower Tariffs for the products of mutual interest of developed countrieswere applicable to all

Developing countries also enjoyed the same tariff level as per theprovision of Most-Favoured-Nation (MFN)

Most-Favoured-Nation (MFN)

deriving incidental gains/benefits without participating much/direct(According to Article I of the GATT-1944)

The principle beneficiaries of concessions were the developed countriesfor the products of mutual interest, but;

The developing countries derived incidental gain through the application

of the MFN principle Even though they did not participate much in the tariff reduction exercise

directly (upto the Tokyo Round) Granting developing countries a status of Free Riders in the trading

system


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Institutional Implications of Tokyo Rounds:1973-1979

Tokyo Round & Uruguay Round have important institutionalimplications

Three important features of the Tokyo Round having

institutional significance;1) Specification of Obligations & disciplines

Expansion of Trade Area covering:

Subsidies

Dumping

Technical barriers to Trade Customs valuation

Import Licensing

Formulation of more disciplines & obligations

Principles became more specific & precise


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2) Specific Sectoral Agreements Civil Aircraft Dairy Products Bovine Meat

Earlier GATT framework for rights & duties was common toall sectors

3) Establishment of Tokyo Round Codes

Tokyo Round Results were finalized in agreements (Known

as Tokyo Rounds Codes)

Only applicable to the countries which accept them Uprooted the MFN rule


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Division of Countries into various classes:

a. Countries: as signatories to the Code shall have differentrights & obligations than others

b. Countries: as non-signatories shall not get free entry tothe meeting of the committees createdunder these Codes (only observer status)

Resulted in fragmentation of GATT structure


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Institutional Implications of Uruguay Rounds:1986-1994

More fundamental institutional implications:

1) Institutionalization of Multilateral Trade framework

creation of World Trade Organization (WTO) in 1994

Having the status of inter-governmental body

2) Effective enforcement system of rights & obligations

Pragmatism in trading system

No chance for mal-practicing, avoiding rules or legalprocess for international trading

Fix time-frame specification for dispute settlement atvarious stages

Creation of Panels & Appellate Body of WTO for disputesettlement


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Automatic approval of findings and evidences of these legalbodies for dispute settlement

3) Expansion of WTO Coverage: Covering services & Intellectual Property Rights (IPRs) in

goods

Coverage of new areas in trading system


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Characteristics of Uruguay Rounds:

1. Pressure by private corporations on developed countriesgovernments for the inclusion of Services & IPRs intonegotiations (successful)

2. US Financial services Sector pressurized US government for theliberalization of financial services (Banking, Loans, MNCs, etc)

in negotiations

3. Pharmaceutical Industries of USA, Japan & EU to their respectivegovernments for standards of IPRs Protection in negotiations


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4. Finally, major developed countries pressurized developing tofollow the same principles

5. Developing Countries reluctance & resistance initially on IPRs

6. US-severing bilateral negotiations & intense pressure with thesecountries ultimately led to their surrender

7. But, they lost the confidence in multilateral trade system for thetime-being


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Interim Steps to Reform GATT:

Ministerial Meeting of 1982: (Trade Liberalization)

1970s-80s--a commitment of major developed countries forliberalization of trade, particularly in the area of Agriculture

Introduction into the GATT, of the consideration of Services,Investment & high technology (as the most important areas ofthe economy)

No practical outcome of the meeting but,

A work program initiated for the liberalization


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Haberler Report of 1958: (Reforming the GATT)

Report by the Panel of Experts chaired by Gottfried Haberler(Professor of Economics at Harvard University)

Panels investigation of loopholes:

Agricultural protectionism

Sharp variation in the prices of primary products The sector of an economy making direct use of natural resources. This

includes agriculture, forestry and fishing, mining, and extraction of oil

and gas. This is contrasted with the secondary sector, producingmanufactures and other processed goods, and the tertiary sector,producing services. The primary sector is usually most important in lessdeveloped countries, and typically less important in industrialcountries.


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Failure of the export trade of underdeveloped countries

Outcomes of the Report:1) Multiple under-developed countries are now exporting lowpriced manufacturers

2) Reduction in revenue duties by industrialized countries to giveaccess to non-industrial areas to their markets

Revenue:In business, revenueis incomethat a companyreceives from itsnormal business activities, usually from the sale of goods andservicesto customers.
http://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Incomehttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Incomehttp://en.wikipedia.org/wiki/Business


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3) Export of important products like; Tobacco, Sugar, Cotton &oilseeds from poorer underdeveloped countries to thedeveloped countries

4) High level of taxation on main primary products as coffee,tea, tobacco: a hurdle in consumption

5) Protectionism in mining & oil industries: a barrier indomestic markets further reducing the earning capacity of

primary producers

Report Analysis:

Addition of Part IV to the GATT

Favorable treatment to the developing countries


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Leutwiler Report of 1985:

( chaired by Fritz Leutwiler, former chairman of the Swiss

National Bank & the President of the Bank of International

Settlements)

Protectionism as an Agenda in the report

Preferred openness of trade policy to avoid protectionism in each

country

Analysis of costs & benefits of trade policies


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WTO-Ministerial Conferences

Four ministerial conferences held;

Singapore Ministerial Conference (1996)

Geneva Ministerial Conference (1998)

Seattle (US) Ministerial Conference (1999) Doha Ministerial Conference (2001)

(Ministerial Conference)

A highest decision-making body of WTO Convened at least once in 2 years

Responsible for carrying out the functions of WTO

Comprised on ministers/representatives from developed anddeveloping countries


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Singapore Ministerial Conference (1996)

Major developed countries proposed 5 new subjects:

1) Investment

2) Competition Policy

3) Government Procurement4) Trade Facilitation

5) Social Clauses (Labour Standards)

Opposition to these clauses by developing countries

Significant expansion of trade activities

Zero-duty on Information Technology goods (anew development)

Agreed by all developed and developing countries surprisingly


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Geneva Ministerial Conference (1998)

A commitment to duty-free transaction ofelectronic goods

Seattle (US) Ministerial Conference (1999) Conference highly attended but collapsed Criticism on WTO Insistence of developing countries for the

exploitation by developed countries Emphasis of developing countries for their

proposal considerations Demonstrations by NGOs further destabilizing

the Conference atmosphere


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Drawbacks of the Conference:

Created differences among major developed & developingcountries

Severe blow to the WTO system Conference ended without any formal ceremony

Membership effected by major developed countries

More focus on regional organizations & business groups

Disappointment from upcoming Doha Conference


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Doha Ministerial Conference (2001)

Produced an agreed work program

Launching new round of MTNs

Comprehensive negotiations held including; agriculture, Services,Subsidies, anti-dumping, regional trading arrangements, disputesettlements, Industrial tariffs & IPRs

Criticism on Doha Round:

Known as Doha Development Agenda for developing countries, itproved to be an unbalanced program

Accommodation only to the major developed countries in the newareas

Less consideration to the proposals of developing countries


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Increased asymmetry in WTO system

Mostly served the interests of major developed countries

Finally, decision-making process effected the credibility of WTO

_________________________________________________


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Important Informal Processes:

Three informal processes playing an important role;

1. Consultative Group 18 (CG-18)

2. The Morges Group on Agriculture

3. 7 plus 7 ConsultationsConsultative Group 18 (CG-18)

Formal constitution but informal work

DG of GATT prepared a list of 18 members of the contractingparties every year in the meeting to form a group of 18

Group continued for a year

Semblance of balance in hierarchical structure of developed &the developing countries


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9 members from major countries of EEC were counted as 1group, normally dominates the meeting

Meeting held quarterly with an agenda prepared by DG

the then current issues & policies were to be discussed & futurepossibilities were highlighted

DG summarize the discussion & issue press release

The Morges (Lake) Group on Agriculture

Organized specially to talk about the agricultural issues ininternational trade as no attention was paid to the area in Tokyo

Round Informal meetings & sessions

No much effective


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7 plus 7 Consultations

Comprised on 7 developed & 7 developing countries membersgroup

Hold regular consultations on important issues

Like CG-18 the EEC was counted as 1 representation Informal having no record

DG or Chairman of GATT held these consultations

Ad-hoc based


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Trends/Characteristics of WTO:

Various ups & downs in the organization

1. Developed Countries--- a driving force:

WTO shaped by the laws & practices of the developed

countries (USA) Trading Patterns of developed countries became into the

structure of WTO

(i) For Example; USA developed the principle of reciprocity intariff concession in its bilateral agreements with other

European countries (1930s-40s)---further extended to other allcountries

Finally became a part of GATT framework leading toMultilateralism


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(ii) Provision of Escape Clause: Bilateral reciprocal agreementwithin USA-Mexico

Escape Clause: (Escaping from the obligations of the

agreement in case of injury to the domestic

industry)

Later, the same provision was extended to all other USagreements

Finally the provision got absorbed into GATT as a safeguard

clause

(iii) Subsidies code, Anti-Dumping Code, Code on Technicalbarriers to trade adopted in Tokyo Round & Uruguay Round ---allare based on the practices of US & EEC


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2. A vehicle for developed countries Interests

Developed countries (US, EU) pursuance of their vestedinterests & objectives in GATT/WTO system

A. US found its agricultural sector as ignored in international tradingsystem

Initiated a move (waiver) to might withdraw from GATT if her wishesare not accommodated

Ultimately, an abnormal decision was taken to grant US a permanentwaiver in agricultural sector in 1955 by GATT members

B. Creation of EEC as custom Union The EEC was created as a custom union in 1957, although GATT has specific disciplines for the formation of custom

unions through a legal system

But the members threaten to leave the organization if EEC wasprohibited


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C. Textile Industry in clash:

Export capacity of the developing countries in textile sector posed athreat to the textile industry of developed countries

Created an environment of competition---unfeasible by the developedcountries might be leading to the closure of their industries

exploited GATT for the protection to their textile industry byestablishing specific rules in derogation to GATT

D. Special Trading arrangements in GATT Special trading arrangements were instituted in leather, steel,

automobile and electronics sectors

The provisions mostly served the interests of developed countries


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E. Significance of Service Sectors & IPRs Early 1980sexpansion of international trade

Introduction of Services & knowledge-based activities into trading

system Investors getting anxious to seek outside opportunities especially in

developing countries

Eventually, developed countries included these all subjects into tradenegotiations/rounds

F. Trade through electronic media End of 1990sUSA prompted the members of WTO for a commitment

to allow duty free electronic commerce (eCommerce) in Geneva (1998)and Doha rounds


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3. Hypocrisy

developed countries took lead in forming GATT framework butnever acted upon strictly

In all the trouble situations they quickly give up all the trade

restrictive policies & measuresAgriculture Sector4. Agriculture Agriculture sector initially ignored by US & EU countries

Their more attention & Concern to industrialization focused

Agriculture no more desirable sector

After a decade USA, felt it necessary to be included in tradingstructure

USA initiated a waiver

EU followed the same


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5. Textile

Textile industry weak in developed countries

Incomputable to Japan & China

Developed countries bypassed GATT rules and made other

arrangements Special regimes were created in various forms

Short Term Agreement (STA)

Long Term Agreement (LTA)

Multi-Fibre Agreement (MFA)

insistence of developed countries to bring about structuralchanges just to get prevail over developing countries textileindustries


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These arrangement of restricting covered cotton, wool, fiber,further enhanced to jute & silk also

Trade liberalization more moved to trade restriction throughthis exploitation

6. Grey Area Measures

Besides the textile industry, some other areas were also trouble-maker in the field like, jute, leather etc

The major developed industries felt the import of all these

sectors from developing countries as threat to their domesticindustries

They pressurized their governments to restrict inports in thesesectors


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Pressurizing developing countries to be Volunteer

Developed countries pressurized developing countries to agreevoluntarily to restrict export to a specific level while threatening

them otherwise,

Imports would be unilaterally restricted Developing countries reluctantly agreed to this arrangement

described as Voluntary Export Restrains (VER)

Developing countries compelled to make complain to GATTbecause of their self-settlement

Such doubtful situation was named as grey-area measures Later, the same grey area measures were applied to steel industry


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7. Politicization of GATT/WTO

politicization of these organizations by developed & even thedeveloping countries had been very common act for their politicalinterests

During 1982-83, UK, Argentina fought over Falkland and Malvinasislands

UK & several other developed countries imposed trade sanctionsagainst Argentina for the measures for security reasons

The other developed countries just showed their solidarity with

UK who had conflict with Argentina USVarious sanctions against Pakistan, Afghanistan, Iran etc


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Transformation in Trading patterns

Three reasons for this change

1. The Collapse of USSRI. GATT system helped developed countries to keep eastern bloc out of

its orbit

II. Except Hungary & Czechoslovakia, the USSR and other countries wereprohibited

III. GATT helped the developed countries to more prevail capitalism

2. Developed countries entry into the consolidation of OPEC & risein oil prices

1. After oil price raising in 1970s-80s, it effected developed countriestechnological industry

2. But they tackled strategically

3. Entered into OPEC consolidation


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3. Internal Weaknesses of the developing countries

Political & economic problems of these countries

Asia, Africa, Latin America under a vicious circle led developedcountries to exploit the situation

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