What is it after all?

How do countries build up relations?

• Preferential Trade Agreement• Free Trade Agreement (Area)• Customs Union• Common Market• Economic, Political, Monetary Union

Why WTO?

“The multilateral trading system is an attempt by the governments to provide investors, employers, employees and consumers with a business environment which encourages trade, investment and job creation as well as choice and low prices in the market place. Such an environment needs to be stable and predictable, if the business has to invest and thrive.”

History

• Industrial Revolution 18th-19th Century• Expansion in Trade, Markets, Colonies• World Wars I & II• Wars followed by Depression led to -– High Tariff Walls– Unemployment

History

• Following World War II, victor nations sought to create institutions that would eliminate the causes of war

• To eliminate the economic causes of war by establishing three international economic institutions

• Economic philosophy of these Bretton Woods institutions were Classical Economic Neoliberalism

USUK

India

Brettons Wood meeting after IInd World War

1944

IMF

IBRD

ITO GATT

1. Australia 13. Lebanon2. Belgium 14. Luxembourg3. Brazil 15. The Netherlands4. Burma (now Myanmar) 16. New Zealand5. Canada 17. Norway6. Ceylon (now Sri Lanka) 18. Pakistan7. Chile 19. Zimbabwe8. China 9. Cuba 20. Syria10. Czechoslovakia 21. South Africa11. France 22. United Kingdom12. India 23. United States

The Founders

Year Nature of Negotiation No.

The Geneva

Round (Ist)

1947 Tariffs 23

*elimination of certain duties & preferences*binding of duties at existing level

The Annecy Round (IInd)

1949 Tariffs 13

*concessions increased from 66% to 80%*147 sets of bilateral negotiations completed

The Torquay Round (IIIrd)

1951 Tariffs 38

*About 8700 concessions were negotiated*Only 147 out of 400 agreements concluded

The Geneva Round (IVth)

1956 Tariffs 26

*Only US granted concessions on imports.*No other country felt satisfied

The Dhillon Round (Vth)

1960-61

Tariffs 26

*A bilateral tariff agreement between US & EEC to reduce tariff on variety of Industrial goods.

First five rounds reduced avg trade weighted tariff from 50% to 12%.

The Kennedy Round

(VIth)

1964-67

Tariff and Antidumping measures 26

*US Tariffs were reduced by 50% spread over 5 yrs*Increased access to world markets for ag products*Granting of concessions to the developing countries on a non reciprocal basis.*Anti dumping practice was established, S&D treatment

Tokyo Round (VIIth)

1973-79

Tariff and Non Tariff measures 102

*Working on MFN Clause reviewed*Tariffs and Non tariff measures in favour of developing countries recognized*Dispute settlement was notified*Tariff cutting commitments legally binding

URUGUAY

Round(VIIIth)

1986-93

Tariff and Non tariff measures 123

First time inclusion of: •WTO establishment.•Agriculture•Textiles and Clothing•TRIPS•Services•Dispute Settlement body

History of WTO

• Two world wars: 1914-1919 & 1939-45 followed by great depressions… Trade Wars!.. GATT formed in 1947

• Monopoly of G-7 countries: US, UK, Canada, Germany, France, Japan and Italy versus USSR

• WTO formed when Soviet Union collapsed in 1989

Most Favored Nation

MFN

MFN

• Article 1 - Trade without Discrimination• Countries cannot discriminate between their

trading partners.• If it grants someone a special favor (such as

lower customs duty), then it has to give that benefit to all member countries

MFN Features• While any favourable treatment to any country –

whether a Member/not has to be accorded to all other Members, the same is not necessarily required vice-versa, i.e. any treatment to the Members is not needed to be accorded to a Non-Member.

• Whether a Member provides MFN treatment to a non-member is entirely a bilateral issue. Therefore, the alternative is a series of separate bilateral agreements with all the countries.

Why MFN Important?

A. Efficiency• MFN makes it possible to import a product

from most efficient supplier in world.• Lack of MFN, conversely, would entail

availability of products from preferred sources of imports

Why MFN Important?

B. Predictability & Transparency• MFN requires favourable treatment granted

to one country to be immediately and unconditionally granted to all other Members.

• Lack of MFN would mean that each and every country in the world has a separate set of conditions for trade with every other country, unimaginably complicating the global trading system.

Why MFN Important?C. Simplify Negotiations• Due to the uniformity, it reduces cost of maintaining the

system for individual countries.

• Benefits include need for not having detailed rules of origin including import monitoring regimes as products from all sources will get the same treatment–one of the main drawbacks of PTAs.

• Reduces negotiation cost as members negotiate bilaterally and the treatment negotiated is unconditionally provided to all thereby reducing the need to negotiate with all countries in the world on the same product.

Flip Side

However...• There is a flip side to this advantage– Bilateral

negotiations lack transparency since non-participants are not informed as to the real reasons behind the results achieved.

• Negotiations tend to reflect the power relationship & may not be most advantageous.

Exceptions• Preferential Trade Agreements: The most

significant departure in terms of real trade impact from MFN rule. Today over 50% of world trade- PTAs.

• Special & Differential Treatment: Enabling Clause for Developing and Developed Countries.

• Protection from Unfair Trade by raising tariff barriers against goods from specific countries.

Preferential Trade

PTAs allowed with following conditions:• Tariffs & other barriers to trade be eliminated

with respect to substantially all trade within the region customs union must be the aim.

• Tariff & other barriers to outside countries must not be higher or more restrictive than they were prior to RTAs.

National Treatment

NT

Features

• NT obligations begin once imported product has entered domestic market by paying customs duties.

• NT principle requires not to discriminate against imported products vis-à-vis their like domestic products.

Features

• Prevents imposition of discriminatory taxes such as sales or VAT at greater than those levied on a like domestic products & any discriminatory treatment in other areas including through domestic regulations & requirements affecting the sale, offering for sale, purchase, transportation, distribution or use of products.

NT necessary

• This addresses a primal mercantilist tendency to protect domestic products and producers.

• To ensure that liberalization process proceeds on negotiated track and members don’t offset through equivalent domestic taxes imposed discriminatorily on imported goods only.

NT necessary

• A country may not have preferred source of imports, may shield its economy.

• Infant industry argument still has followers.

• As compared to tariffs, domestic taxes not required to be notified lack transparency, predictability, and negotiability.

NT necessary

• Limits the distortive impact on international trade by impeding the adoption of policies and measures for protection of domestic industry

• Promotes efficiency and productivity by enhancing competitiveness of domestic industry through competitive international goods.

Exceptions

• Government procurement• Domestic subsidies• Cinematographic Films• Other exceptions

Special & Differential Treatment

S&DT

Prebisch's Theory -Enabling Clause

“According to Prebisch's theory, the international terms of trade tend in the long run to move against primary products;

Thus in order to develop, underdeveloped countries must therefore shift from primary-product exports to manufactures via an interventionist state policy of industrial growth.”

Features

• S&DT an imp and integral part of WTO• Developing Countries about 130 including 30

Least Developed Countries• Developing Countries seeking a more active

role

Features

• Differential and more favourable treatment for the LDCs

• Technical assistance to cope up• Only for Transitional time periods

That’s it for today…

Phew!