the world trade organization · world trade organization essentially, the wto is a place where...

The World Trade Organization

The World Trade OrganizationCentre William Rappard

rue de Lausanne 154CH–1211 Geneva 21

Switzerland

website: www.wto.org

The first stepis to talk.

Somewhere to negotiate and apply the results

This is where governments go to try to sort out their trade problems.

WTO: not just for liberalizing trade. Sometimes the rules support trade barriers —e.g. to protect consumers or prevent the spread of disease.

What is the WTO?

Somewhere to talk

WTO: Decision Making

GATT

• From 1948 to 1994, the General Agreement on

Tariffs and Trade (GATT) provided the rules for

much of world trade and presided over periods

that saw some of the highest growth rates in

international commerce. It seemed well-

established, but throughout those 47 years, it was

a provisional agreement and organization.

GATT

• The original intention was to create a third

institution to handle the trade side of international

economic cooperation, joining the two “Bretton

Woods” institutions, the World Bank and the

International Monetary Fund. Over 50 countries

participated in negotiations to create an

International Trade Organization (ITO) as a

specialized agency of the United Nations.

The Bretton Woods ConferenceOrganizations Created

General Agreement on Tariffs and Trade

GATT

International Bank for Reconstruction and Development

IRBD

World Bank

International Monetary Fund

IMF

GATT

• Meanwhile, 15 countries had begun talks in

December 1945 to reduce and bind customs

tariffs: This first round of negotiations resulted in a

package of trade rules and 45,000 tariff

concessions affecting $10 billion of trade, about

one fifth of the world’s total.

• The tariff concessions came into effect by 30 June

1948 through a “Protocol of Provisional

Application”. And so the new General Agreement

on Tariffs and Trade was born, with 23 founding

members (officially “contracting parties”)

GATT

• The ITO Charter was finally agreed in Havana in

March 1948, but ratification in some national

legislatures proved impossible. The most serious

opposition was in the US Congress.

• So, the GATT became the only multilateral

instrument governing international trade from

1948 until the WTO was established in 1995.

GATT’s roundsYear Place/name Subjects covered Countries

1947 Geneva Tariffs 23

1949 Annecy Tariffs 13

1951 Torquay Tariffs 38

1956 Geneva Tariffs 26

1960-1961 Geneva

Dillon Round

Tariffs 26

1964-1967 Geneva

Kennedy Round

Tariffs and anti-dumping measures 62

1973-1979 Geneva

Tokyo Round

Tariffs, non-tariff measures, “framework”

agreements

102

1986-1994 Geneva

Uruguay Round

Tariffs, non-tariff measures, rules, services,

intellectual property, dispute settlement,

textiles, agriculture, creation of WTO, etc

123

2001-2012

2017

Doha Round

Bali???

Tariffs, non-tariff measures, agriculture, labor

standards, environment, competition,

investment, transparency, patents etc.

159

GATT’s rounds

Non-Discrimination Principle

• Non-discrimination has two elements

• Most-favored nation (MFN) applying to border

measures

Each member must grant treatment to all other members as

favorable as it extend to any individual member country

• National Treatment (NT) applying to behind-the-

border measures

Foreign goods within a country should be treated no less

favorably than domestic good with regard to tax policies and

other regulations

Non-Discrimination Principle

General Prohibition of Quotas

• A second important GATT principle

General prohibition of quotas or quantitative restrictions

on trade

Reflects a longstanding view that price distortions (tariffs) are

preferred to quantity distortions in international markets

Quantitative restrictions were one of the most significant

impediments to trade prior to GATT

Exceptions are allowed

Tariffs: what about today?

• Gatt become WTO in 1995

• the World Trade Organization (WTO) isthe only international organizationdealing with the global rules of tradebetween nations. Its main function isto ensure that trade flows assmoothly, predictably and freely aspossible.

World Trade Organization

Essentially, the WTO is a place wheremember governments go to try tosort out the trade problems theyface with each other. The first stepis to talk.

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


The bulk of the WTO’s current workcomes from the 1986–94negotiations called the UruguayRound and earlier negotiationsunder the General Agreement onTariffs and Trade (GATT).

The WTO is currently the host to newnegotiations, under the “DohaDevelopment Agenda” launched in2001.


Functions:

• Administering WTO trade agreements

• Forum for trade negotiations

• Handling trade disputes

• Monitoring national trade policies

• Technical assistance and training for developing countries

• Cooperation with other international organizations

Please read

The 10 benefits of WTO

1. The system helps promote peace

2. Disputes are handled constructively

3. Rules make life easier for all

4. Freer trade cuts the costs of living

5. It provides more choice of products and qualities

6. Trade raises incomes

7. Trade stimulates economic growth

8. The basic principles make life more efficient

9. Governments are shielded from lobbying

10.The system encourages good government

WTO: The result is assurance.

The system’s overriding purpose is to helptrade flow as freely as possible — so longas there are no undesirable side-effects.

That partly means removing obstacles.It also means ensuring that individuals,companies and governments know whatthe trade rules are around the world,and giving them the confidence thatthere will be no sudden changes ofpolicy.

WTO: The result is assurance.

In other words, the rules haveto be “transparent” andpredictable.

Hence the risk of disputesspilling over into political ormilitary conflict is reduced.

WTO = Multilateral Trading System

At the heart of the system — known as themultilateral trading system — are theWTO’s agreements, negotiated andsigned by a large majority of the world’strading nations, and ratified in theirparliaments.

These agreements are the legal ground-rules for international commerce.Essentially, they are contracts,guaranteeing member countriesimportant trade rights.

Principles of the trading system

1) Trade without discrimination

2) Freer trade: gradually, throughnegotiation

3) Predictability: through binding andtransparency

4) Promoting fair competition

5) Encouraging development andeconomic reform

REVIEW OF GATT/WTO PRINCIPLES

Protection only through Tariffs

Reduction and Binding of Tariffs

Most Favored Nation (MFN)

Transparency

REVIEW OF WTO PRINCIPLES

• Trade without discrimination

1. Most-favoured-nation (MFN):

Under the WTO agreements, countries cannot

normally discriminate between their trading partners.

Grant someone a special favour (such as a lower

customs duty rate for one of their products) and you

have to do the same for all other WTO members.


• Trade without discrimination

2 Treating foreigners and locals equally

Imported and locally-produced goods should be treated

equally — at least after the foreign goods have entered

the market. The same should apply to foreign and

domestic services, and to foreign and local trademarks,

copyrights and patents.


• Freer trade: gradually, through negotiation

Lowering trade barriers is one of the most obvious

means of encouraging trade. The barriers concerned

include customs duties (or tariffs) and measures such as

import bans or quotas that restrict quantities selectively.

From time to time other issues such as red tape and

exchange rate policies have also been discussed.


• predictable — foreign companies, investors and

governments should be confident that trade barriers

(including tariffs and non-tariff barriers) should not be

raised arbitrarily; tariff rates and market-opening

commitments are “bound” in the WTO;

• more competitive — discouraging “unfair” practices

such as export subsidies and dumping products at

below cost to gain market share;


• A WTO member may take a “safeguard” action (i.e.,

restrict imports of a product temporarily) to protect a

specific domestic industry from an increase in imports

of any product which is causing, or which is

threatening to cause, serious injury to the industry.

GATT was good

• In the early years, the GATT trade rounds

concentrated on further reducing tariffs

• Continual reductions in tariffs alone helped spur

very high rates of world trade growth during the

1950s and 1960s — around 8% a year on

average.

World trade growth rates

Uruguay Round

• It took seven and a half years, almost twice the

original schedule. By the end, 123 countries were

taking part. It covered almost all trade, from

toothbrushes to pleasure boats, from banking to

telecommunications, from the genes of wild rice to

AIDS treatments. It was quite simply the largest

trade negotiation ever, and most probably the

largest negotiation of any kind in history.

The 15 original Uruguay Round subjects

• Tariffs

Non-tariff barriers

Natural resource

products

Textiles and clothing

Agriculture

Tropical products

GATT articles

• Tokyo Round codes

Anti-dumping

Subsidies

Intellectual property

Investment measures

Dispute settlement

The GATT system

Services

GATT: Agreement on Agriculture

• Agreement on Agriculture addressed three issues Market access

Replaced quotas with a system of bound tariffs (tariffication) and tariff-reduction commitments

Domestic support Distinction was made between

• “Green box” measures—are exempt from any reduction commitments

• “Amber box” measures—are not exempt

Export subsidies Use was not eliminated but limited to specified situations

• Represented a change in rules with little actual

liberalization

GATT: Agreement on Agriculture

Trade in Services

• General Agreement on Trade in Services (GATS)—significant outcome of Uruguay Round Represented first time services were brought into a multilateral trade

agreement

Negotiations were difficult due to fact that trade in services is less tangible than trade in goods

• Defined trade in services as occurring in one of four modes Mode 1: Cross-border trade

Mode 2: Movement of consumers

Mode 3: Foreign direct investment or FDI

Mode 4: Movement of natural persons

Trade in Services

• Cross-border trade Mode of supply that does not require physical movement of

producers or consumers For example, Indian firms provide medical transcription services to US

hospitals via satellite technology

• Movement of consumers Consumer travels to the country of producer

For example, tourism services

• Foreign direct investment Services that require a commercial presence by producers in

country of the consumers For example, financial services

• Temporary movement of natural persons Non-commercial presence by producers

For example, consulting, construction, and instructional services

Intellectual Property

• An asset in the form of rights conferred upon a product of invention or creation by a country’s legal system

• Agreement on Trade-Related Aspects of Intellectual Property Rights Most contentious aspect of Marrakesh Agreement

Defined intellectual property as belonging to one of six categories

Copyrights

Trademarks

Geographical indications

Industrial designs

Patents

Layout designs of integrated circuits

Applied the principle of nondiscrimination to intellectual property

TRIPS Agreement

• Sets out obligations for members Copyrights

Members must comply with 1971 Berne Convention on copyrights

Trademarks Goods and services are to be protected for a term of no less than seven

years

Provisions for the registration of trademarks must be made and are renewable indefinitely

Geographical indications Members must provide legal means to prevent false use of geographical

indications

Industrial designs Members must protect “independently created industrial designs that are new

or original”

Patents Exceptions exist and include protection of public order, human, animal, and

plant life

Layout designs of integrated circuits Distribution of protected layout designs is forbidden

TRIPS Agreement

TRIPS Agreement

• Citizens and firms in developed countries own most of the world’s IP

• Developing countries currently often have less IP protection than developed countries Especially in the case of patents

• Raises cost of many goods and services to developing countries Represents a transfer from developing country consumers to

developed country producers

• Issues have also been raised about the impact of new

pharmaceutical patents on access to medicines

A summary

In a nutshell

The basic structure of the WTO agreements: how the six main areas fit together — the umbrella

WTO Agreement, goods, services, intellectual property, disputes and trade policy reviews.

Umbrella AGREEMENT ESTABLISHING WTO

Goods Services Intellectual property

Basic principles GATT GATS TRIPS

Additional details Other goods

agreements and

annexes

Services annexes

Market access

commitments

Countries’ schedules of

commitments

Countries’ schedules of

commitments(and MFN

exemptions)

Dispute settlement DISPUTE SETTLEMENT

Transparency TRADE POLICY REVIEWS

Agreement only by consensus

Everyone has to be persuadedNo one forced by a majority

Everything else follows from negotiations ...

Somewhere to talk

Foremost: The WTO is a forum for negotiations

Tariffs: more bindings and closer to zero

• The bulkiest results of Uruguay Round are the

22,500 pages listing individual countries’

commitments on specific categories of goods and

services. These include commitments to cut and

“bind” their customs duty rates on imports of

goods. In some cases, tariffs are being cut to

zero. There is also a significant increase in the

number of “bound” tariffs — duty rates that are

committed in the WTO and are difficult to raise.

Tariffs: more bindings and closer to zero

• Developed countries’ tariff cuts were for the most

part phased in over five years from 1 January

1995. The result is a 40% cut in their tariffs on

industrial products, from an average of 6.3% to

3.8%. The value of imported industrial products

that receive duty-free treatment in developed

countries will jump from 20% to 44%.

Tariffs a few years ago …

USA years ago….

WTO: Organization

55

MinisterialConferenceWTO

Organization

General Council

Council for Trade in Goods

Council for TRIPS

Councilfor Trade

in ServicesCommittees

CommitteesCommittees

Working Parties

Working Parties

Working Parties

Dispute Settlement

TradePolicy Review

TNC

WTO: a place whereyou can complain

Main actors in the WTO Dispute Settlement System

Art 2 DSU, The Dispute Settlement Body (DSB)

Administers the WTO Dispute Settlement System

Establishes panels

Adopts panel and Appellate Body reports

Maintains surveillance of implementation

Non-implementation? Authorizes retaliatory measures

The panel 3 – 5 panelists, ad hoc body

The Appellate Body Standing body of 7 members, 4-year term

WTO and AB Secretariat Assist panels and the AB

Main actors in the WTODispute Settlement System

58

How the Dispute Settlement System works

Panel Report Appellate Body

Establishes No appeal? DSB adopts the report

DSB adopts the reports

The Dispute Settlement Body,All Members

59

• Panel proceedings

• (Appellate Body review)

• Inconsistent measures...

– Withdrawal

– Compensation / Suspension of concessions

...and if no mutually agreed solution reached

Measure

60

Main Stages

Good offices,conciliation and

mediation possible at any

moment

Consultations60 days

Panel review6 – 9 months

AB review 60 – 90 days

Adoption of report by the DSB

Implementation

61

First element: Identify the measure(s) at issue

Definition of a measure

AB: “Any act or omission attributable to a WTOMember can be a measure of that Member for thepurposes of dispute settlement proceedings”

Measures may take the form of...

Laws, regulations, administrative instructions,specific application of laws etc (tariffs, quotas,anti-dumping/CVD measures, safeguards ...)

62

Second element: Identify the claims

Definition of a claim

AB: “A claim that the respondent party has violated, ornullified or impaired the benefits arising from, an identifiedprovision of a particular covered agreement.”

How to identify the claimsAB: “Provide a summary – and it may be a briefone – of the legal basis of the complaint that is‘sufficient to present the problem clearly’.”

63

Panel composition

• No permanent panels / panelists, ad hoc

• Indicative list of panelists

• Secretariat proposes nominations, parties can oppose for compelling reasons

• Well-qualified government and/or non-governmental individuals

• If disagreement: Nomination by DG

(at the request of complainant)

Article 8 of the DSU

As of April 2010:

148 panels composed (88 by the DG)! !

64

Third Parties

• “Substantial interest”

• No DSU deadline

– In practice Members notify their “substantial interest” at the DSB meeting at which the Panel is established

• Limited rights

– Right to receive the first written submissions

– Right to make written submissions to the panel

– Right to be heard by the panel

– Enhanced third-party rights? Granting within the

“sound discretion of the panel”

Article 10 of the DSU

65

Panel proceedings

1. First written submissions of the parties

3. First substantive meeting with the parties and third parties - Third party session

4. Written rebuttals of the parties

5. Second substantive meeting with the parties6. Descriptive part of the report to the parties

7. Parties’ comments on the descriptive part8. Interim review9. Final report issued to parties

10. Final report circulated to all Members

Appendix3 DSU –

Generalworking

procedures

2. [Third party submissions]

66

Panel proceedings

1. First written submissions of the parties

3. First substantive meeting with the parties and third parties - Third party session

4. Written rebuttals of the parties

5. Second substantive meeting with the parties6. Descriptive part of the report to the parties

7. Parties’ comments on the descriptive part8. Interim review9. Final report issued to parties

10. Final report circulated to all Members

Appendix3 DSU –

Generalworking

procedures

2. [Third party submissions]

Trade without discrimination

Most-favoured-nation (MFN):treating other people equally

Under the WTO agreements, countriescannot normally discriminate betweentheir trading partners. Grant someone aspecial favour (such as a lower customsduty rate for one of their products) andyou have to do the same for all other WTOmembers.

WTO claims

The system has bothstrengthens and weaknesses.

WTO’s weaknesses

With respect to its weaknesses, despitethe deadlines, a full dispute settlementprocedure still takes a considerableamount of time, during which thecomplainant suffers continuedeconomic harm

No provisional measures (interim relief)are available to protect the economicand trade interests of the successfulcomplainant during the disputesettlement procedure.

WTO’s weaknesses

Even after prevailing in disputesettlement, a successful complainantwill receive no compensation for theharm suffered during the time givento the respondent to implement theruling. Nor does the “winning party”receive any reimbursement from theother side for its legal expenses.

WTO’s strengthens

If one compares the WTO disputesettlement system with the previousdispute settlement system of GATT1947, the current system has beenfar more effective. Moreover, itsquasi-judicial and quasi-automaticcharacter enables it to handle moredifficult cases.

And if something goes wrong?

If a country has done something wrong, itshould swiftly correct its fault. And if itcontinues to break an agreement, itshould offer compensation or suffer asuitable penalty that has some bite.

The priority is for the losing “defendant” tobring its policy into line with the ruling orrecommendations of the panel report orthe appeals report.

If complying with the recommendationimmediately proves impractical, themember will be given a “reasonable periodof time” to do so.


If after 20 days, no satisfactorycompensation is agreed, the complainingside may ask the Dispute Settlement Bodyfor permission to impose limited tradesanctions (“suspend concessions orobligations”) against the other side. TheDispute Settlement Body must grant thisauthorization within 30 days of the expiryof the “reasonable period of time” unlessthere is a consensus against the request


In principle, the sanctions should beimposed in the same sector as thedispute. If this is not practical or if itwould not be effective, the sanctions canbe imposed in a different sector of thesame agreement. In turn, if this is noteffective or practicable and if thecircumstances are serious enough, theaction can be taken under anotheragreement. The objective is to minimizethe chances of actions spilling over intounrelated sectors while at the same timeallowing the actions to be effective.

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