World Trade Organization (WTO)

Origin of WTO
WTO is a multilateral system that deals with the rules of trade between nations on a global level. WTO came into effect on January 1, 1995. The signing of the final Act of URUGUAY ROUND by member nations of GATT (General Agreement on Tariffs and Trade) in April 1994,in Marrakesh, Morocco, paved the way for setting up the WTO. WTO has membership of 153 countries, accounting for 97% of world trade.

General Agreement on Tariff and Trade

GATT was not really an organization, it was merely a legal agreement, which was signed 1948 in Geneva. Initially there was 23 signatories countries. India and China were amongst these founding members. (Officially known as Contracting Parties).

The main objective of GATT was to encourage growth and development. To ensure competition in commodity trade through removal or reduction of trade barriers.

The objective of GATT was achieved through a series of multilateral negotiations known as trade rounds. Mainly there were eight trade rounds. Initial GATT trade rounds were concentrated on reduction of tariffs.

GATT Trade Rounds

Year Place Subject Covered
Tariff

Participants
23

Average Tariff Cut %

1947 Geneva

35 NA

1949
1951 1956

Annecy
Torquay Geneva

Tariff
Tariff Tariff

13
38 26

25
NA

Year
196061

Place
Geneva Dillon Round

Subject Covered
Tariff (world-wide reduction)

Participants
26

Average Tariff Cut %

NA

196467
19731979 19861994

Geneva Kennedy Round

Geneva Tokyo Round Geneva Uruguay Round

Tariffs and antidumping measures

Tariffs with focus on non-tariff barriers Tariffs, non-tariff barriers, services, teaxtiles, agriculture, IPR, WTO creation

62

35
33 36

102

123

The Uruguay Round

The new trade round in 1986 , at Punta del Este, Uruguay was launched. The round was supposed to end when ministers met once again in Brussels in December 1990. But there was disagreement on reforming agriculture trade. In 1991, Director general, Arthur Dunkel drafted a legal agreement, which is known as Dunkel Draft, which was the basis for Uruguay Round negotiation. In 1993, all issues including agriculture market access, service trade to be concluded but they were remain unresolved, resultantly, in 1994, 123 countries signed WTO agreement.

Basic Principle of WTO

1.

WTO follows some principle of the trading system as: Non-Discrimination: Every member has to be
treated equally without any discrimination. It covers:
a)

Most Favoured Nation (MFN):

As per this principle WTO members extend the same favourable terms of trade to all members what they extended to any single member.

Example: If Japan were to reduce its import tariff on German automobiles to 5%, it must reduce the tariff for other member countries.

b). National Treatment:

Under this principle, imported goods, service and capital that have entered the domestic market should be given the same treatment as that given to locally produced goods, service and industry.
Charging custom duty on import is not violation of this principle, because it applies only when goods entered into market.

2. Transparency
It

is basic pillar of the WTO.

WTO

members are required to publish their trade regulations, to establish and maintain institutions allowing for the review of administrative decisions affecting trade.

Trade Policy Review Mechanism provides a means of encouraging transparency both domestically and at the multilateral level.

3. Binding and Enforceable

Commitments
In the WTO, when countries agreed to open their

markets for goods and services, they bind their commitments.

In

the case of goods, these bindings amount to ceilings on custom tariff rates ( import duties.) Countries have to follow bound rates. A country can change its binding, but only after negotiating with its trading partner.

4. Reciprocity

When a country seeks to renegotiate and withdraws a previous concession, the WTO rules provide that the affected trading partner may retaliate in a reciprocal manner by withdrawing an equal concession.

5. Safety Valves: A final principle of WTO is

that in specific circumstances, governments should be able to restrict trade . Four type of provisions are given:

1.

Goods and services meant for non-economic objectives such as public health and national security. Infant Industries likely to be injured by competition from imports.

2.

3. Articles aimed at ensuring fair competition. Measures in this situation include the right to impose countervailing duties on imports that have been subsidized and anti-dumping duties on imports that have been dumped.

4. Provisions permitting intervention in trade for

economic reasons. Economic reasons include measures to correct a serious unfavorable balance of trade.

Functions of WTO

It facilitates the implementation, administration and operation of the trade agreements; It provides a forum for further negotiations among member countries on matters covered by the agreements as well as on new issues falling its mandate. It is responsible for the settlement of differences and disputes among its member countries. It is responsible for carrying out periodic reviews of the trade policies of its member counties.

The WTO Structure

Highest authority: the Ministerial Conference

Topmost is the ministerial conference which has to meet at least once every two years.

The Ministerial Conference can take decisions on all matters under any of the multilateral trade agreements.

7. Geneva, Switzerland, 30 November to 2 December 2009. 6. Hong Kong, 13-18 December 2005 5. Cancn, 10-14 September 2003 4. Doha, 9-13 November 2001 3. Seattle, November 30 December 3, 1999 2.Geneva, 18-20 May 1998 1. Singapore, 9-13 December 1996

Second level: General Council

The General Council is the WTOs highest-level decisionmaking body in Geneva, meeting regularly to carry out the functions of the WTO. It has representatives (usually ambassadors or equivalent) from all member governments and has the authority to act on behalf of the ministerial conference which only meets for every two years. It meets as the Dispute Settlement Body and the Trade Policy Review Body to oversee procedures for settling disputes between members and to analyse members trade policies.

Third level: councils for each broad area of trade

Three more councils, each handling a different broad area of trade, report to the General Council:
The Council for Trade in Goods (Goods Council) The Council for Trade in Services (Services Council)

1.

2.

3.

The Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS Council)

Six other bodies report to the General Council. The scope of their coverage is smaller, so they are committees.
These committee still consist of all WTO members. They cover issues such as trade and development, the environment, regional trading arrangements, and administrative issues. The Singapore Ministerial Conference in Dec. 1996 decided to create new working groups to look at investment and competition policy,and trade facilitation.

Fourth level: down to the nitty-gritty

Each of the higher level councils has subsidiary bodies. The Goods Council has 11 committees dealing with specific subjects (such as agriculture, market access, subsidies, anti-dumping measures and so on).

The Services Councils subsidiary bodies deal with financial services, domestic regulations, GATS rules and specific commitments.

At the General Council level, the Dispute Settlement Body also has two subsidiaries:
The dispute settlement panels of experts appointed to adjudicate on unresolved disputes; The Appellate Body that deals with appeals;

WTO Agreements
Creating Marketing opportunities in the Industrial Sector - Agreement on Non Agriculture Market Access :
It

includes the market access commitments of member countries to reduce the tariffs and not to increase the tariffs the listed rates (bound rates).

Reduction in Tariffs

The weighted average level of tariffs applicable industrial products is now expected to fall from the present level of:

6.3% to 3.8% in developed countries 15.3% to 12.3% in developing countries 8.6% to 6% in the transition economies. Additional commitments were made under the information technology Agreement where in 40 countries accounting for more than 92% trade in information technology product , agreed to eliminate import duties by 2000.

Creating Fairer Markets in Agriculture Sector (AOA)

The objective of Agreement on Agriculture is reform trade in agriculture sector and to make more market oriented policies.

International trade in agriculture became highly distorted when developed countries provide financial help to their farmers to sell at lower price which depressed price in international market of agroproducts.

1.

Resultantly, the Uruguay Round produced the first multilateral agreement dedicated to the agriculture. There are three pillar for AOA based on market access: Reduction of Tariffs and Elimination of Nontariff Measures:

Member countries agreed to reduce:

Developed countries
Average cut for all agriculture product : 36% over six years Minimum cut per product : 15% over six years

Developing Countries:
Average cut for all agriculture product : 24% over six years; Minimum cut per product : 10% over six years;

Least-developed countries do not have to make commitments to reduce tariffs.

Eleminiation of Non-tariff Measures through Tariffication :

The process of converting quotas and other type of non-tariff measures to tariff is termed as tariffication. The objective of tariffication is to provide equivalent level of protection.

Domestic Support

National policies that support domestic prices or subsidized production often encourage over production. This squeezed out imports and low-price dumping in international markets. The domestic support in the agriculture sector is categorized by green and amber

Green Box : All subsidies that minimal trade distorting effects and do not have the effect of providing price support to producers, exempt for reduction commitments. Following subsidies are allowed:
Government

expenditure on agricultural research, pest control, marketing, and promotional services. Payment for natural disaster; Payment under environmental programmes

Amber Box: This category of domestic support refers to the amber colour of traffic lights, which means slow down. The agreement establishes

A ceiling on the total domestic support that a govt. may provide to its domestic producers. These supports are subject to limits: de minimis minimal supports are allowed (5% of agricultural production for developed countries, 10% for developing countries).

Export Subsidies

The Agreement on Agriculture also prohibits export subsidies . WTO members to cut subsidies in terms of :
Money

spend on export subsides

Developed Countries cut the value of subsidies by 36% over a period of six years. Developing Countries - cut the value of subsidies by 24% over a period of 10 years.

Volume of subsidized exportsDeveloped countries (to reduce 21% over six Years) Developing Countries (to reduce 14% over 10 years)

Least

developed countries were not required to make any reduction.

Opening up Marketing Opportunities in Textiles

World trade in textile and clothing has been subject to a large number of bilateral quota arrangements over the past four decades.
From 1974, until the end of the Uruguay Round, international trade was governed by the Multi-fibre Arrangement (MFA), which established quotas limiting imports into countries. Since 1995, the WTOs Agreement on Textile and Clothing (ATC) has taken over the schedule of integration over the period of 10 years since inception of WTO. Now QRs are completely abolished since 1 Jan.2005

Standard and Safety Measures for International Market

This Agreement on Sanitary and Phytosanitary (SPS) meaures sets out the basic rules on food safety and animal and plant health standard, which should be applied only to the extent necessary to protect human, animal or plant life or health.
Member countries are encouraged to use international standard such as, FAO/WHO Codex Ailmentarius Commission for Food.

However, the agreement allows countries to set higher standards with consistency. This agreement includes provisions for control, inspection, and approval procedures.

Agreement on Technical Barriers to Trade: This agreement complements the agreement on (SPS) which tries to ensure that regulations, standards, testing and certification procedures do not create unnecessary obstacles.

General Agreement on Trade in Service

This agreement covers all internationally traded services, such as, banking, telecommunications, tourism, professional service etc. It defines four modes of trading services internationally: Mode 1:- Cross border supply (e.g. telephones calls) Mode 2:- Consumption abroad (e.g. tourism) Mode 3:- Commercial Presence (e.g. foreign banks setting up operations in a country) Mode 4: - Movement of Natural Persons

Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)

This agreement recognized creation of human mind and intellect. Under this agreement inventors can be given the right to prevent others from using their inventions. These rights are known as Intellectual Property Rights.

TRIPS Coverage and minimum period of Protection Patents :

Patents are given to inventions that are : Novelty, Non-obvious and commercial utility

Period of Protection:

Patent protection must be available for inventions for at least 20 years from the date of filing of the application. Inventions that can be patented: Biological inventions, computer software, computer hardware and peripherals, medicine, machines and food inventions, musical instruments.

The Indian Patent Act 2005

The salient and important features of the amended Act are given below:

Introduction of Product patenting in three sectors -- pharmaceuticals, agrochemicals and food. This was under the TRIPs obligation to introduce product patenting in these sectors, latest by January 1, 2005. So far, only process patents were allowed in these sectors in India.

Copyright coverage Area and Term of Protection:

Literary Work: (books, fiction and computer programme - set of instructions expressed in words, codes and Poems) Dramatic Work : Other than cinematography or photographic, such as, choreographic work or entertainment. The term of protection is 50 years from the date of authorized publication. Cinematographic work : 50 years after completion of work. Photographic work : 25 Years after completion.

Trademarks

Trademarks may be one or combination of words, letters, and numerals. They may also consist of drawings, symbols, three dimensional signs such as shape and packaging of goods, or colours used as distinguishing feature.

Term : Ten years from initial registration and

each renewal of registration.

Geographical Indication

Geographical Indications which identify a good as originating in the territory of a member or a region or a locality in that territory must be protected.

Term of GI protection

The registration of a GI shall be for a period of ten years but may be renewed from time to time for an unlimited period by payment of the renewal fees.

Examples of GI with special reference to India

Turmeric Originated in India. Its unique properties also make it an effective ingredient in medicines, cosmetics and as a colour dye. In March 1995, two expatriate Indians at the University of Mississippi Medical Centre were granted a US patent for turmeric to be used to heal wounds. The Council for Scientific and Industrial Research (CSIR) filed a case with the US Patent Office in protest prior art, i.e. existing public knowledge. In support, CSIR had to show an ancient sanskrit text and a paper published in 1953 in IMA. The US patent had to cancelled the patent on the ground of novelty.

Trade Related Investment Measures

This agreement recognizes that certain measures can restrict and distort trade which are not compliance with WTO rules as :
Product

Mandating: In this case, an MNC makes

the production of certain goods for local consumption, a condition of establishment.

 Export

Balancing : In this case, a corporation

is forced to export goods to the value of same as imports so that it does not damage a countrys current account position.

Local

Content Requirement: In this case, a

corporation must include a certain percentage of locally produced goods in its production.

Curbing Unfair Marketing Practices

International market competition get distorted mainly by unfair trade practices as follows:

If the exported goods benefit from the subsidies If exported goods are dumped in overseas markets.

The agreement on Anti-dumping Practices (ADP) authorizes importing countries to levy compensatory duties on import of products.

 A product is considered to be dumped if:

The

export price is less than the price charged for the like product in the exporting country. or It is sold for less than its cost of production.

Anti-dumping measures can only be applied if the dumping is hurting the industry in the importing country on the basis of the following ways:

If the margin of dumping is more than 2% of the export price of the product. If the volume of dumped import is more than 3% of the total imports of that product.

Status of Users of Anti-dumping Masseurs :

98 anti-dumping cases having been initiated against Indias exports by 2004. Major initiators of these cases against India include European Union, U.S.A., Singapore, Taiwan, Japan and Russia with chemicals, petrochemicals, pharmaceutical and other metals as major categories of such investigation.

The Agreement on Subsidies and Countervailing Measures

This agreement (SCM) administers the use of subsidies and regulates the action that countries can take to counter the effects of subsidies on the basis of following ways:
The

importing country can use the WTOs dispute settlement procedure to seek the withdrawals of the subsidy. Importing country can launch its own investigation and charge extra duty (countervailing duty) on subsidized imports.

Agreement on SCM contains two categories of subsidies:

1.

Prohibited Subsidies : If domestic producers are hurt

by imports of subsidized products Countervailing duty can be imposed. The list of prohibited export subsidies is given: Directs subsidies based on export performance; Provision of subsidized inputs for use in the production of exported goods; Exemption from direct taxes (e.g. tax on profit related to exports) and indirect tax (VAT)

Export credits at rates below the governments cost of borrowing;

Actionable Subsidy : In this case three types damages taken into account otherwise subsidy is permitted: Countrys subsidies can hurt a domestic industry in an importing country; The domestic subsidies in one country can hurt exporters trying to compete in the subsidizing countrys domestic market;

Non-Tariff Marketing Barriers

Import Licensing Procedures :

This

generally considered as complex and nontransparent, which block market entry of foreign products.

Concern

importing country issues license which takes 30 days to deal with an application. simplification purpose, this agreement sets criteria for automatic issuance of some licenses so that the procedures do not restrict trade.

For

Customs Valuation :
This

agreement aims a fair, uniform and neutral system for the valuation; can reject the transaction value in such situations only if it has reasons to doubt the truth or accuracy of the declared price of the imported good. In this case also importers get opportunity to justify their price.

Custom

Pre-shipment Inspection in International Market:

The

basic purpose of pre-shipment inspection is to check shipment details (price, quantity and quality of goods) ordered overseas.
agreement establishes an independent review procedure administered jointly by the International Federation of Inspection Agencies (IFIA), representing inspection agencies and International Chamber of Commerce (ICC), representing exporters.

The

Rules of Origin in International Market Rules of origin are used as the criteria to define

where a product was made.

This agreement requires WTO members to ensure that their rules of origin are transparent and that they do not have restricting, distorting or disruptive effects on international trade.

Procedure of settlement of international trade disputes

Consultation Panel established Terms of reference composition Panel examination Interim review stage

Time frame for settlement of international trade disputes

60 days 45 days 6 months 3 weeks 60 days report (if Total 60-90 days 30 days appeals Total Consultations, mediation, etc. Panel set up and panellists appointed Final panel report to parties Final panel report to WTO members Dispute settlement body adopts no appeal) One Year (without appeal) Appeal resort Dispute settlement body adopts report 15 months (with appeal)

The implications of WTO on international marketing

Binding Of Concessions and Commitments: Rights of exporters : Right to expect that the exported product will not be subject to customs duties that are higher than the bound rates in case of trade in goods. Right to expect that access of service products will not be made more restrictive than indicated by the terms and conditions given in the countrys schedule of commitment.

Valuation of goods for customs purposes (Agreement on Customs Valuation): Marketing implication :
Assurance

that the value declared by the importer will, as rule, be accepted as basis for determining the value of imported goods for customs purposes.

Rights of Importers:
Importers

have a right to expect that they will be consulted at all stages of the determination of values;

Use of pre-shipment inspection services (Agreement on Pre-shipment Inspection)

Marketing Implication:
By

assisting governments in controlling such malpractices as the over-valuation and undervaluation of imported goods, PSI services help to improve the trading environment.

These services speed up clearance of goods through customs and reduce customs-related corruption.

Import licensing procedures (Agreement on Imports Licensing Procedures):

Marketing Implication: Assures importers and foreign suppliers that for products for which import license are required should be issued expeditiously. Anti-dumping and Countervailing actions : Right of exporters -