World Trade Organisation

A Brief History: At the height of second world war, in 1944 representatives from 44 countries met at Bretton Woods, New Hampshire to discuss and evolve agreements on two issues 1. Reconstruction and Development of War Torn countries particularly that of Europe, and 2. Design a new monetary system (Competitive Devaluation with the objective of Beggar Thy Neighbor) The agreement reached at Bretton Woods established two multinational institutes International Monetary Fund (IMF), and International Bank for Reconstruction and Development(IBRD)

World Trade Organisation A Brief History

IBRD was subsequently known as The World Bank The Task as envisaged in agreements were IMF = To maintain order in international monetary System World Bank = To promote general economic development Bretton Woods agreement also sought commitment of countries not use currency devaluation as a weapon of competitive trade policy The intention at Bretton Woods was to create a third institute that handle international Economic cooperation. The complete plan of over 50 countries was to create an International Trade Organisation (ITO) as a specialised agency of the United Nations

International Trade Organisation (ITO)

The Draft ITO charter was ambitious, it extended beyond World Trade disciplines to include Rules on employment Commodity agreements Restrictive business practices International investment, and Services. 1946 Even before the ITO charter was finally approved, 23 of the 50 participants decided to negotiate to reduce and bind custom tariffs The 23 also agreed that they should accept some of the trade rules of the draft ITO charter. It entered into force in January 1948, while the ITO charter was still being negotiated, and 23 became the founding GATT members. ( Officially contracting parties)

International Trade Organisation (ITO)

The ITO charter was finally agreed at a UN conference on Trade and employment in Havana in March 1948, ratification in some national legislatures proved impossible. The most serious problem encountered the US congress refusal to seek congressional ratification of the Havana charter ( Even though US was the driving force), and the ITO was dead.

GATT

At the demise of ITO, GATT (Though provisional, remained the only multilateral instrument governing international trade from 1948 to 1995, until the WTO was established

WTO

Location: Geneva, Switzerland Established: 1 January 1995 Created by: Uruguay Round negotiations (1986-94) Membership: 153 countries (as on March, 2008)

WTOObjectives

1. To help trade flow as freely as possible. 2. To achieve further liberalization gradually through and 3. To set up an impartial means of settling disputes.

negotiation,

To help trade flow as freely as possible.

The systems overriding purpose is to help trade flow as freely as possible so long as there are no undesirable side effects. That partly means removing obstacles. It also means ensuring that individuals, companies and governments know what the trade rules are around the world, and giving them the confidence that there will be no sudden changes of policy. In other words, the rules have to be transparent and predictable.

To achieve further liberalization gradually through negotiation

Because the agreements are drafted and signed by the community of trading nations, often after considerable debate and controversy, one of the WTOs most important function is to serve as a forum for trade negotiations arriving at agreements on further liberalisation.

To set up an impartial means of settling disputes.

A third important side to the WTOs work is dispute settlement. Trade relations often involve conflicting interests. Contracts and agreements, including those painstakingly negotiated in the WTO system, often need interpreting. The most harmonious way to settle these differences is through some neutral procedure based on an agreed legal foundation. That is the purpose behind the dispute settlement process written into the WTO agreements.

The System Operated by WTO

Multilateral trading system Most nations including almost all the main trading nations are members of the system. But some are not, and that is why the word multilateral is used, instead of global or world, to describe the system. In WTO affairs, the word has an additional important meaning. Here, multilateral refers to activities on a global or near-global level (in particular among all WTO members). It contrasts with actions taken regionally or by other smaller groups of countries. (This is different from the common use of the word in other areas of international relations where, for example, a multilateral security arrangement can be regional.)

Principles of WTO trading system

Without discrimination Freer Predictable More Competitive More Beneficial For LDCs

Without discrimination

A country should not discriminate between its trading partners (they are all, equally, granted most-favoured-nation or MFN status); and it should not discriminate between its own and foreign products, services or nationals (they are given national treatment).

Freer Trade

With barriers coming down through negotiation

Predictable Trade
Foreign companies, investors and governments should be confident that trade barriers (including tariffs, non-tariff barriers and other measures) should not be raised arbitrarily; more and more tariff rates and market-opening commitments are bound in the WTO.

More Competitive

More Competitive by discouraging unfair practices such as export subsidies and dumping products at below cost to gain market share.

More Beneficial For LDCs

More Beneficial For Less Developed Countries by giving them more time to adjust, greater flexibility, and special privileges.

Trade without discrimination

1. Most-favoured-nation (MFN): Treating other people equally 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. This principle is known as most-favoured-nation (MFN) treatment). It is so important that it is the first article of the General Agreement on Tariffs and Trade (GATT), which governs trade in goods. MFN is also a priority in the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) , although in each agreement the principle is handled slightly differently. Together, those three agreements cover all three main areas of trade handled by the WTO.

Trade without discrimination

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. This principle of national treatment (giving others the same treatment as one's own nationals) is also found in all the three main WTO agreements, although once again the principle is handled slightly differently in each of these.

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. Since GATT's creation in 1947- 48 there have been eight rounds of trade negotiations. At first these focused on lowering tariffs (customs duties) on imported goods. As a result of the negotiations, by the late 1980s industrial countries' tariff rates on industrial goods had fallen steadily to about 6.3%.

Predictability: Through Binding

Sometimes, promising not to raise a trade barrier can be as important as lowering one, because the promise gives businesses a clearer view of their future opportunities. With stability and predictability, investment is encouraged, jobs are created and consumers can fully enjoy the benefits of competition choice and lower prices. The multilateral trading system is an attempt by governments to make the business environment stable and predictable. Percentages of tariffs bound before and after the 1986-94 talks Before After Developed countries 78 99 Developing countries 21 73 Transition economies 73 98

Promoting fair competition

The WTO is sometimes described as a free trade institution, but that is not entirely accurate. The system does allow tariffs and, in limited circumstances, other forms of protection. More accurately, it is a system of rules dedicated to open, fair and undistorted competition. The rules on non-discrimination MFN and national treatment are designed to secure fair conditions of trade. So too are those on dumping (exporting at below cost to gain market share) and subsidies. The issues are complex, and the rules try to establish what is fair or unfair, and how governments can respond, in particular by charging additional import duties calculated to compensate for damage caused by unfair trade.

Encouraging development and economic reform

It is widely recognized by economists and trade experts that the WTO system contributes to development. It is also recognized that the least-developed countries need flexibility in the time they take to implement the agreements. And the agreements themselves inherit the earlier provisions of GATT that allow for special assistance and trade concessions for developing countries.

GATT & WTO

The basic structure of the WTO agreements Goods Services Intellectual property Disputes

Basic Principles

GATT

GATS

TRIPS

Dispute Settlement

Benefits of the WTO trading system

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. The system helps promote peace Disputes are handled constructively Rules make life easier for all Freer trade cuts the costs of living It provides more choice of products and qualities Trade raises incomes Trade stimulates economic growth The basic principles make life more efficient Governments are shielded from lobbying The system encourages good government

1. The system helps to keep the peace

Peace is partly an outcome of two of the most fundamental principles of the trading system: 1.Helping trade to flow smoothly. 2.Dealing with disputes over trade issues. How does this work? Crudely put, sales people are usually reluctant to fight their customers usually. In other words, if trade flows smoothly and both sides enjoy a healthy commercial relationship, political conflict is less likely. Whats more, smoothly-flowing trade also helps people all over the world become better off. People who are more prosperous and contented are also less likely to fight.

2. The system allows disputes to be handled constructively

More trade means more possibilities for disputes to arise. Left to themselves, those disputes could lead to serious conflict. But in reality, a lot of international trade tension is reduced because countries can turn to organizations, in particular the WTO, to settle their trade disputes. Over 200 disputes have been brought to the WTO since it was set up in 1995. Without a means of tackling these constructively and harmoniously, some could have led to more serious political conflict.

3. A system based on rules rather than power makes life easier for all
The WTO cannot claim to make all countries equal. But it does reduce some inequalities, giving smaller countries more voice, and at the same time freeing the major powers from the complexity of having to negotiate trade agreements with each of their numerous trading partners.

4. Freer trade cuts the cost of living

We are all consumers. The prices we pay for our food and clothing, our necessities and luxuries, and everything else in between, are affected by trade policies. According to one calculation, consumers and governments in rich countries pay $350 billion per year supporting agriculture enough to fly their 41 million dairy cows first class around the world one and a half times

5. It gives consumers more choice, and a broader range of qualities to choose from

Think of all the things we can now have because we can import them: fruits and vegetables out of season, foods, clothing and other products that used to be considered exotic, cut flowers from any part of the world, all sorts of household goods, books, music, movies, and so on. Life with ...... and without imports; South KoreaGhana Example

6. Trade raises incomes

Lowering trade barriers allows trade to increase, which adds to incomes national incomes and personal incomes. But some adjustment is necessary. The fact that there is additional income means that resources are available for governments to redistribute. The WTOs own estimates for the impact of the 1994 Uruguay Round trade deal were between $109 billion and $510 billion added to world income (depending on the assumptions of the calculations and allowing for margins of error). More recent research has produced similar figures. Economists estimate that cutting trade barriers in agriculture, manufacturing and services by one third would boost the world economy by $613 billion equivalent to adding an economy the size of Canada to the world economy. In Europe, the EU Commission calculates that over 198993 EU incomes increased by 1.11.5% more than they would have done without the Single Market. So trade clearly boosts incomes.

7. Trade stimulates economic growth, and that can be good news for employment

Trade clearly has the potential to create jobs. In practice there is often factual evidence that lower trade barriers have been good for employment. But the picture is complicated by a number of factors. Nevertheless, the alternative protectionism is not the way to tackle employment problems.

8. The basic principles make the system economically more efficient, and they cut costs
Many of the benefits of the trading system are more difficult to summarize in numbers, but they are still important. They are the result of essential principles at the heart of the system, and they make life simpler for the enterprises directly involved in trade and for the producers of goods and services.

9. The system shields governments from narrow interests

The GATT-WTO system which evolved in the second half of the 20th Century helps governments take a more balanced view of trade policy. Governments are better-placed to defend themselves against lobbying from narrow interest groups by focusing on trade-offs that are made in the interests of everyone in the economy. Governments are better placed to ward off powerful lobbies Superficially, restricting imports looks like an effective way of supporting an economic sector. But it biases the economy against other sectors which shouldnt be penalized if you protect your clothing industry, everyone else has to pay for more expensive clothes, which puts pressure on wages in all sectors, for example.

10. The system encourages good government

Under WTO rules, once a commitment has been made to liberalize a sector of trade, it is difficult to reverse. The rules also discourage a range of unwise policies. For businesses, that means greater certainty and clarity about trading conditions. For governments it can often mean good discipline. The rules reduce opportunities for corruption The rules include commitments not to backslide into unwise policies. Protectionism in general is unwise because of the damage it causes domestically and internationally, as we have already seen. Particular types of trade barriers cause additional damage because they provide opportunities for corruption and other forms of bad government.

Common Misunderstandings About The WTO

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. The WTO dictates policy The WTO is for free trade at any cost Commercial interests take priority over development Over the environment Over health and safety The WTO destroys jobs, worsens poverty Small countries are powerless in the WTO The WTO is the tool of powerful lobbies Weaker countries are forced to join the WTO The WTO is undemocratic

1. WTO dictates?
The WTO does not tell governments how to conduct their trade policies. Rather, its a member-driven organization. The WTO is member-driven, That means: The rules of the WTO system are agreements resulting from negotiations among member governments, The rules are ratified by members parliaments, and Decisions taken in the WTO are virtually all made by consensus among all members. As for the WTO Secretariat, it simply provides administrative and technical support for the WTO and its members. In fact: its the governments who dictate to the WTO.

2. Blindly For Trade? The WTO is NOT for free trade at any cost
Its really a question of what countries are willing to bargain with each other, of give and take, request and offer. It all depends on what countries want to bargain. Yes, one of the principles of the WTO system is for countries to lower their trade barriers and to allow trade to flow more freely. After all, countries benefit from the increased trade that results from lower trade barriers. But just how low those barriers should go is something member countries bargain with each other. Their negotiating positions depend on how ready they feel they are to lower the barriers, and on what they want to obtain from other members in return. One countrys commitments become another countrys rights, and vice versa.

3. Ignores Development?
The WTO is NOT only concerned about commercial interests. This does NOT take priority over development -The WTO agreements are full of provisions taking the interests of development into account, Sustainable development is a principal objective Underlying the WTOs trading system is the fact that freer trade boosts economic growth and supports development. In that sense, commerce and development are good for each other.

4. Anti-Green?
Many provisions take environmental concerns specifically into account. The preamble of the Marrakesh Agreement Establishing the World Trade Organization includes among its objectives: Optimal use of the worlds resources, Sustainable development and environmental protection. This is backed up in concrete terms by a range of provisions in the WTOs rules. Among the most important are umbrella clauses which allow countries to take actions to protect human, animal or plant life or health, and to conserve exhaustible natural resources. In the WTO, commercial interests DO NOT take priority over environmental protection.

5. Anti-Health?

The WTO does NOT dictate to governments on issues such as food safety, and human health and safety. Again commercial interests do NOT override, The agreements were negotiated by WTO member governments, and therefore the agreements reflect their concerns. Safety concerns are built into the WTO agreements

6. Wrecks Jobs?
The WTO does NOT destroy jobs or widen the gap between rich and poor-The accusation is inaccurate and simplistic. Trade can be a powerful force for creating jobs and reducing poverty. Often it does just that. Sometimes adjustments are necessary to deal with job losses, and here the picture is complicated. In any case, the alternative of protectionism is not the solution. Some adapt quickly (for example by finding new employment), others take longer.

7. Small left out?

Small countries would be weaker without the WTO. The WTO increases their bargaining power. Small countries are NOT powerless in the WTO.

8. Tool Of Lobbies?

The WTO system offers governments a means to reduce the influence of narrow vested interests. The WTO is NOT the tool of powerful lobbies. Governments can use the WTO to resist lobbying. This is a natural result of the rounds type of negotiation (i.e. negotiations that encompass a broad range of sectors).

9. Weak Forced to join?

Weaker countries do have a choice, they are NOT forced to join the WTO, Most countries do feel that its better to be in the WTO system than to be outside it. Thats why the list of countries negotiating membership includes both large and small trading nations

10. Undemocratic?

Decisions in the WTO are generally by consensus. In principle, thats even more democratic than majority rule because no decision is taken until everyone agrees.