1 World Trade Organization (WTO)
Nazneen Ahmed Research Fellow Bangladesh Institute of Development Studies (BIDS)
2 Outline of the Presentation
Introduction to WTO – History, Goal and Objectives, The System, some basic concepts The Agreements: 1. General Agreement on Tariffs and Trade (GATT) – Agriculture, non-Agricultural market access 2. General Agreement on Trade in services (GATS) 3. Trade Related Aspects of Intellectual Property rights Dispute Settlement, Aid for trade, The Doha Development Agenda
3 Introduction to WTO An organization for liberalizing trade, which deals with the rules of trade between nations at a global or near-global level Location: Geneva, Switzerland Established: January 1995 Created by: Uruguay Round Negotiations (1986–94) Membership: countries on 23 July 2008 accounting for over 97% of world trade. Budget: million Swiss francs for 2009 Secretariat staff: 625 Head: Pascal Lamy (Director-General). He was appointed on 1 September 2005 for a four-year term
4 Goals and objectives The ultimate goal is to improve the welfare of the peoples of the member countries. The WTO’s overriding objective is to help trade flow smoothly, freely, fairly and predictably. It does this by: * Administering trade agreements * Acting as a forum for trade negotiations * Settling trade disputes * Reviewing national trade policies * Assisting developing countries in trade policy issues, through technical assistance and training programmes * Cooperating with other international organizations
5 History – from GATT to WTO (1)
WTO is the successor to the General Agreement on Tariffs and Trade (GATT) originated in 1947. After ending of the second World War, the two “Bretton Woods” institutions, the World Bank and the International Monetary Fund was established. At that time the idea was to create a third organization to handle the trade side of international economic cooperation. The draft charter of International Trade Organization (ITO) was too ambitious. – Included only trade issues, but rules on employment, commodity agreements, restrictive business practices, international investment, and services.
6 History – from GATT to WTO (2)
Even before starting the negotiation for an ITO, a smaller group of countries (15) had started negotiation in December 1945, to reduce and bind customs tariffs. They wanted to give an early boost to trade liberalization, and to begin to correct the legacy of protectionist measures which remained in place from the early 1930s.
7 History – from GATT to WTO (3)
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 group had expanded to 23 by the time the deal was signed on 30 October 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”).
8 History – from GATT to WTO (4)
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, even though the US government had been one of the driving forces. In 1950, the United States government announced that it would not seek Congressional ratification of the Havana Charter, and the ITO was effectively dead. But GATT continued as the only multilateral instrument governing international trade until the WTO was established in 1995. During 1948 to 1994, GATT was a provisional agreement and an unofficial de facto international organization. WTO is an organization; GATT still exists as the WTO’s umbrella treaty for trade in goods, updated as a result of the Uruguay Round negotiations.
9 The System Multilateral’ trading system -- the system operated by the WTO. Most nations — including almost all the main trading nations — are members of the system. (covering more than 97% of world trade) The WTO was born out of negotiations, and everything the WTO does is the result of negotiations The system was developed through a series of trade negotiations, or rounds, held under GATT.
10 Trade Negotiation Rounds (1)
11 Trade Negotiation Rounds (2)
The first 5 rounds dealt mainly with tariff reductions but later negotiations included other areas such as anti-dumping and non-tariff measures. The last round under GATT–The Uruguay Round of Negotiations ( ) established the WTO with its ‘single undertaking’ (Every agreement of WTO falls on every member of the WTO).
12 Basic Principles Trade should be -- 1. Without discrimination
2. Predictable 3. More competitive 4. More beneficial for least developed countries
13 Trade without discrimination
1. Most- favoured-nation (MFN) – no discriminate between trading partners 2. National treatment: 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.
14 Predictability of Trade
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;
15 More competitive Discouraging “unfair” practices such as export subsidies and dumping products at below cost to gain market share
16 More beneficial for least developed countries
Giving LDCs more time to adjust, greater flexibility, and special privileges. --- Special and differential treatments
17 Structure of the WTO System
18 Structure of WTO (1) The WTO’s top level decision-making body is the Ministerial Conference which meets at least once every two years. Below this is the General Council (normally ambassadors and heads of delegation in Geneva, but sometimes officials sent from members’ capitals) which meets several times a year in the Geneva headquarters. The General Council also meets as the Trade Policy Review Body and the Dispute Settlement Body. At the next level, the Goods Council, Services Council and Intellectual Property (TRIPS) Council report to the General Council.
19 Structure of WTO (2) Numerous specialized committees, working groups and working parties deal with the individual agreements and other areas such as the environment, development, membership applications and regional trade agreements. The WTO Secretariat in Geneva does not have the decision-making role, The Secretariat’s main duties are to supply technical support for the various councils and committees and the ministerial conferences, to provide technical assistance for developing countries, to analyze world trade, and to explain WTO affairs to the public and media and also giving support to dispute settlements.
20 Bangladesh in the WTO Formal request to be a Member of GATT on 10 October 1972 Arrangement Became a Member of GATT 0n 16 December 1972 just one year after Independence Only Commitment on binding of tariff on 147 products until the conclusion of Uruguay Round Bangladesh became the founder Member of WTO in 1995. After Conclusion of Uruguay Round Bangladesh had to undertake commitment in number of areas (will be discussed later).
21 WTO Agreements (1) The WTO agreements cover goods, services and intellectual property. They spell out the principles of liberalization, and the permitted exceptions. They include individual countries’ commitments to lower customs tariffs and other trade barriers, and to open and keep open services markets. They set procedures for settling disputes.
22 WTO Agreements (2) The current set of WTO rules –the agreements–are the outcome of the Uruguay Round negotiations which included a major revision of the original General Agreement on Tariffs and Trade (GATT). The complete set runs to some 30,000 pages consisting of about 60 agreements and separate commitments (called schedules), annexes, decisions and understandings made by individual members in specific areas such as lower customs duty rates and services market-opening.
23 Six main areas of WTO Agreements
24 Agreements on goods (1) Rules and commitments for agricultural products – Agricultural market access (AMA) Non-agricultural market access (NAMA)
25 Agreements on Goods (2) Commitments for tariff cuts
Binding tariffs -not to increase tariffs above the listed rates Trade distortion by only tariffs – no export subsidy, no domestic support, no quota Separate agriculture agreement and textile agreements But special and differential treatments for LDCs
26 Agriculture Agreement: fairer markets for farmers
market access — various trade restrictions confronting imports domestic support — subsidies and other programmes, including those that raise or guarantee farm gate prices and farmers’ incomes export subsidies and other methods used to make exports artificially competitive.
27 Market access in Agriculture Agreement
Rule for market access in agricultural products is “tariffs only”. Before the Uruguay Round, some agricultural imports were restricted by quotas and other non-tariff measures. These have been replaced by tariffs that provide more-or-less equivalent levels of protection. No Quota restriction is allowed
28 Domestic Support to Agriculture: some you can, some you can’t
The main complaint: support to domestic prices, or subsidize production encourage over-production. This results in low-priced dumping on world markets. The Agriculture Agreement distinguishes between support programmes that stimulate production directly, and those that are considered to have no direct effect. If domestic policies have a direct effect on production and trade, then those have to be cut back, Otherwise not. Domestic support: some you can, some you can’t The main complaint about policies which support domestic prices, or subsidize production in some other way, is that they encourage over-production. This squeezes out imports or leads to export subsidies and low-priced dumping on world markets. The Agriculture Agreement distinguishes between support programmes that stimulate production directly, and those that are considered to have no direct effect. Domestic policies that do have a direct effect on production and trade have to be cut back. WTO members calculated how much support of this kind they were providing per year for the agricultural sector (using calculations known as “total aggregate
29 Domestic Support in Agriculture: The Amber Box
WTO members calculated how much direct support they were providing per year for the agricultural sector (using calculations known as “total aggregate measurement of support” or “Total AMS”) in the base years of 1986–88. Developed countries agreed to reduce these figures by 20% over six years starting in 1995. Developing countries agreed to make 13% cuts over 10 years. Least-developed countries do not need to make any cuts. (If they were providing subsidy at all when the agreement was signed!) This category of domestic support is sometimes called the “amber box”, a reference to the amber colour of traffic lights, which means “slow down”
30 Domestic Support to Agriculture: The Green Box
Measures with minimal impact on trade can be used freely — they are in a “green box”. They include government services such as research, disease control, infrastructure and food security. They also include payments made directly to farmers that do not stimulate production, such as certain forms of direct income support, assistance to help farmers restructure agriculture, and direct payments under environmental and regional assistance programmes.
31 Domestic Support to Agriculture: The blue Box
Certain direct payments to farmers are permitted, where the farmers are required to limit production (sometimes called “blue box” measures) Domestic support is also permitted for certain government assistance programmes to encourage agricultural and rural development in developing countries, and other support on a small scale (“de minimis”) when compared with the total value of the product or products supported (5% or less in the case of developed countries and 10% or less for developing countries). Least-developed countries do not need to make any cuts. But important is what they have committed during while signing the agreement.
32 Agreements related to standards and safety
Sanitary and Phytosanitary Measures Agreement or SPS (It allows countries to set their own standards. But it also says regulations must be based on science. They should be applied only to the extent necessary to protect human, animal or plant life or health. And they should not arbitrarily or unjustifiably discriminate between countries where identical or similar conditions prevail.) The Technical Barriers to Trade Agreement (TBT) tries to ensure that regulations, standards, testing and certification procedures do not create unnecessary obstacles.
33 Agreement on Textile and clothing and Non-agricultural market access (NAMA)
34 Textile and garments exports and MFA quota
The only Agreement that expired Trade in T&C had long been restricted Multi-fibre Arrangement (MFA) quotas since 1975 Uruguay Round decided to eliminate all quantitative restrictions The quota were eliminated in four phases – 1995, 1998, 2002, and 2005
35 Textiles and Clothing Quotas led to expansion of garment activities in Bangladesh Bangladesh’s exports increased rapidly Quotas on China maintained until 2008 Even after quota elimination, tariffs remain a major barriers Tariff reductions for garments will now be decided under Non-agricultural talks.
36 NAMA Key issues Product coverage by tariff lines Binding tariffs
Tariff Peaks and Escalation Tariff Reduction Formula Tariff binding Non-Tariff Barriers (NTBs) Preference Erosion Special treatments for LDCs
37 Bound tariff A commitment, under the GATT, by a country not to raise the tariff on an item above a specified level, called the bound rate or bound tariff
38 Bound Tariff of Bangladesh (2006 latest)
39 Applied and Bound Tariffs
Country group Applied tariff rate Bound tariff rate Industrial economies 4.0 4.7 Developing economies 13.1 20.8 Latin America and the Caribbean 10.1 18.6 East Asia and the Pacific 9.8 16.6 South Asia 27.7 56.1 Other Europe and Central Asia 9.6 14.9 Middle East and North Africa 14.4 26.8 Sub-Saharan Africa 16.5 19.8
40 Tariff Peaks and Escalation
Tariff Peaks: In a tariff schedule, a single tariff or a small group of tariffs that are particularly high, often defined as greater than three times the average nominal tariff. e.g. Textile and Clothing In the US, EU and Canada, large proportion of T&C imports are subject to high tariffs. Tariff escalation: Tariffs increase with processing of products the tendency is usually towards higher tariff on processed goods than on the raw materials from which they are produced. This causes the effective rate of protection on these goods to be higher than the nominal rate and puts LDC producers of primary products at a disadvantage. Footwear and Leather – subject to peaks and escalation
41 Tariff Reduction Formula
Swiss Formula: Those members of the WTO which or who have higher tariffs will face greater reduction while those maintaining lower tariffs will face lower reduction. The formula Z = AX/(A+X) where X = initial tariff rate A = coefficient and maximum tariff rate Z = resulting lower tariff rate (end of period) How the Swiss formula coefficient defines the maximum final tariff: From the formula, Z=AX/(A+X), as the initial tariff X rises to infinity, X/(A+X) approaches 1, resulting in Z=A*1.
43 Non-Tariff barriers Rules of origin
Sanitary and phyto-sanitary measures Other safety and technical standards Labour standards and environmental protection Quality standards Contingency protection measures such as safeguards, and anti-dumping and countervailing measures
44 Preference Erosion For LDCs, NAMA commitments not required, but preference erosion will be a problem decrease in the margin between a preferential tariff rate and the MFN rate LDCs also enjoy preferential treatment on a non-reciprocal basis in various RTAs NAMA tariff cuts can also have adverse preference erosion implications for LDCs
45 Preference erosion for Bangladesh
The EU and Canadian markets – impact would be negative The US market – impact could be positive
46 Tariffs paid on Bangladesh’s exports in the US market
US imports from US imports in 2008 ($ million) Duty paid ($ million) Average import duty (%) United Kingdom 59,572 399 0.67 France 44,226 391 0.88 Bangladesh 3,980 574 14.42
47 Duty-free & Quota-free Market Access
Longstanding demand of LDCs Non-binding DFQF exist such EBA But, the US market does not provide DFQF access to Bangladesh
48 Hong Kong Ministerial Declaration urged developed countries to provide DFQF
But, developed countries facing difficulties were asked to grant duty-free of 97% product lines
49 Duty-free and quota-free market access
Developing countries in a position to do so were also urged to provide duty-free offers to LDCs The 3% exclusion could imply meaningless benefits for Bangladesh
50 Let us move to part 2