World Trade OrganizationWorld Trade Organization(WTO)(WTO)

Nazneen AhmedNazneen Ahmed

Research Fellow Research Fellow

Bangladesh Institute of Development Studies (BIDS)Bangladesh Institute of Development Studies (BIDS)

Outline of the PresentationOutline of the Presentation Introduction to WTO – Introduction to WTO – History, Goal and History, Goal and

Objectives, The System, some Objectives, The System, some basic conceptsbasic concepts The Agreements:The Agreements: 1. General Agreement on Tariffs and 1. General Agreement on Tariffs and Trade (GATT) – Trade (GATT) – Agriculture, non-Agricultural Agriculture, non-Agricultural

market accessmarket access

2. General Agreement on Trade in 2. General Agreement on Trade in services (GATS)services (GATS) 3. Trade Related Aspects of Intellectual 3. Trade Related Aspects of Intellectual Property rightsProperty rights Dispute Settlement, Aid for trade, The Doha Dispute Settlement, Aid for trade, The Doha

Development AgendaDevelopment Agenda

Introduction to WTOIntroduction to WTO An organization for liberalizing trade, which deals with An organization for liberalizing trade, which deals with

the rules of trade between nations at a global or near-the rules of trade between nations at a global or near-global levelglobal level

Location:Location: Geneva, Switzerland Geneva, Switzerland EstablishedEstablished: 1 January 1995: 1 January 1995 Created byCreated by: Uruguay Round Negotiations (1986–94): Uruguay Round Negotiations (1986–94) MembershipMembership: 153 countries on 23 July 2008 : 153 countries on 23 July 2008

accounting for over 97% of world accounting for over 97% of world trade.trade.

Budget:Budget: 189 million Swiss francs for 2009 189 million Swiss francs for 2009 Secretariat staff:Secretariat staff: 625 625

Head:Head: Pascal Lamy (Director-General). He was Pascal Lamy (Director-General). He was appointed on 1 September 2005 for a four-year appointed on 1 September 2005 for a four-year termterm

Goals and objectivesGoals and objectives

The ultimate goal is to improve the welfare of the The ultimate goal is to improve the welfare of the peoples of the member countries.peoples of the member countries.

The WTO’s overriding objective is to help trade flow The WTO’s overriding objective is to help trade flow smoothly, freely, fairly and predictably.smoothly, freely, fairly and predictably.

It does this by:It does this by: * * Administering trade agreementsAdministering trade agreements * Acting as a forum for trade negotiations* Acting as a forum for trade negotiations * Settling trade disputes* Settling trade disputes * Reviewing national trade policies* Reviewing national trade policies * Assisting developing countries in trade policy issues, * Assisting developing countries in trade policy issues, through technical assistance and training programmesthrough technical assistance and training programmes * Cooperating with other international organizations* Cooperating with other international organizations

History – from GATT to WTO (1)History – from GATT to WTO (1) WTO is the successor to the General Agreement on WTO is the successor to the General Agreement on

Tariffs and Trade (GATT) originated in 1947. Tariffs and Trade (GATT) originated in 1947.

After ending of the second World War, the two “Bretton After ending of the second World War, the two “Bretton Woods” institutions, the World Bank and the Woods” institutions, the World Bank and the International Monetary Fund was established. At that International Monetary Fund was established. At that time the idea was to create a third organization to time the idea was to create a third organization to handle the trade side of international economic handle the trade side of international economic cooperation. cooperation.

The draft charter of International Trade Organization The draft charter of International Trade Organization (ITO) was too ambitious. – Included only trade issues, (ITO) was too ambitious. – Included only trade issues, but but rules on employment, commodity agreements, restrictive business practices, international investment, and services.

History – from GATT to WTO (2)History – from GATT to WTO (2)

Even before starting the negotiation for an ITO, Even before starting the negotiation for an ITO, a smaller group of countries (15) had started a smaller group of countries (15) had started negotiation in December 1945, 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.

History – from GATT to WTO (3)History – from GATT to WTO (3)

first round of negotiations resulted in a package first round of negotiations resulted in a package of trade rules and 45,000 tariff concessions of trade rules and 45,000 tariff concessions affecting $10 billion of trade, about one fifth of affecting $10 billion of trade, about one fifth of the world’s total. The group had expanded to the world’s total. The group had expanded to 23 by the time the deal was signed on 30 23 by the time the deal was signed on 30 October 1947. The tariff concessions came into October 1947. The tariff concessions came into effect by 30 June 1948 through a “Protocol of effect by 30 June 1948 through a “Protocol of Provisional Application”. Provisional Application”.

And so the new General Agreement on Tariffs And so the new General Agreement on Tariffs and Trade was born, with 23 founding members and Trade was born, with 23 founding members (officially “contracting parties”).(officially “contracting parties”).

History – from GATT to WTO (4)History – from GATT to WTO (4)

The ITO Charter was finally agreed in Havana in March 1948, but The ITO Charter was finally agreed in Havana in March 1948, but ratification in some national legislatures proved impossible. The ratification in some national legislatures proved impossible. The most serious opposition was in the US Congress, even though the most serious opposition was in the US Congress, even though the US government had been one of the driving forces. In 1950, the US government had been one of the driving forces. In 1950, the United States government announced that it would not seek United States government announced that it would not seek Congressional ratification of the Havana Charter, and the ITO was Congressional ratification of the Havana Charter, and the ITO was effectively dead.effectively dead.

But GATT continued as the only multilateral instrument governing But GATT continued as the only multilateral instrument governing international trade until the WTO was established in 1995. international trade until the WTO was established in 1995.

During 1948 to 1994, GATT was a During 1948 to 1994, GATT was a provisional agreement and an unofficial provisional agreement and an unofficial de facto international organization.de facto international organization.

WTO is an organization; GATT still exists as the WTO’s umbrella WTO is an organization; GATT still exists as the WTO’s umbrella treaty for trade in goods, updated as a result of the Uruguay treaty for trade in goods, updated as a result of the Uruguay Round negotiations.Round negotiations.

The SystemThe 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.

Trade Negotiation Rounds (1)Trade Negotiation Rounds (1)

Trade Negotiation Rounds (2)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 The Uruguay Round of Negotiations (Round of Negotiations (1986-94) ) established the WTO with its ‘single established the WTO with its ‘single undertaking’ (Every agreement of WTO undertaking’ (Every agreement of WTO falls on every member of the WTO). falls on every member of the WTO).

Basic PrinciplesBasic Principles

Trade should be --

1. Without discrimination

2. Predictable

3. More competitive

4. More beneficial for least developed countries

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.

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;

More competitive

Discouraging “unfair” practices such as export subsidies and dumping products at below cost to gain market share

More beneficial for least developed countries

Giving LDCs more time to adjust, greater flexibility, and special

privileges.

--- Special and differential treatments

Structure of the WTO SystemStructure of the WTO System

Structure of WTO (1)Structure of WTO (1)

The WTO’s top level decision-making body is The WTO’s top level decision-making body is the Ministerial Conference which meets at least the Ministerial Conference which meets at least once every two years.once every two years.

Below this is the General Council (normally Below this is the General Council (normally ambassadors and heads of delegation in ambassadors and heads of delegation in Geneva, but sometimes officials sent from Geneva, but sometimes officials sent from members’ capitals) which meets several times members’ capitals) which meets several times a year in the Geneva headquarters. The a year in the Geneva headquarters. The General Council also meets as the Trade Policy General Council also meets as the Trade Policy Review Body and the Dispute Settlement Body.Review Body and the Dispute Settlement Body.

At the next level, the Goods Council, Services At the next level, the Goods Council, Services Council and Intellectual Property (TRIPS) Council and Intellectual Property (TRIPS) Council report to the General Council.Council report to the General Council.

Numerous specialized committees, working groups and Numerous specialized committees, working groups and working parties deal with the individual agreements working parties deal with the individual agreements and other areas such as the environment, and other areas such as the environment, development, membership applications and regional development, membership applications and regional trade agreements.trade agreements.

The WTO Secretariat in Geneva does not have the The WTO Secretariat in Geneva does not have the decision-making role, The Secretariat’s main duties are decision-making role, The Secretariat’s main duties are to supply technical support for the various councils and to supply technical support for the various councils and committees and the ministerial conferences, to provide committees and the ministerial conferences, to provide technical assistance for developing countries, to technical assistance for developing countries, to analyze world trade, and to explain WTO affairs to the analyze world trade, and to explain WTO affairs to the public and media and also giving support to dispute public and media and also giving support to dispute settlements.settlements.

Structure of WTO (2)Structure of WTO (2)

Bangladesh in the WTOBangladesh in the WTO

• Formal request to be a Member of GATT on 10 Formal request to be a Member of GATT on 10 October 1972 ArrangementOctober 1972 Arrangement

• Became a Member of GATT 0n 16 December Became a Member of GATT 0n 16 December 1972 just one year after Independence1972 just one year after Independence

• Only Commitment on binding of tariff on 147 Only Commitment on binding of tariff on 147 products until the conclusion of Uruguay Roundproducts until the conclusion of Uruguay Round

• Bangladesh became the founder Member of Bangladesh became the founder Member of WTO in 1995.WTO in 1995.

• After Conclusion of Uruguay Round Bangladesh After Conclusion of Uruguay Round Bangladesh had to undertake commitment in number of had to undertake commitment in number of areasareas (will be discussed later). (will be discussed later).

WTO Agreements (1)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.

WTO Agreements (2)WTO Agreements (2)

The current set of WTO rules –the agreements–are the outcome of the 1986-94 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.

Six main areas of WTO AgreementsSix main areas of WTO Agreements

Agreements on goods (1)Agreements on goods (1)

Rules and commitments for Rules and commitments for agricultural products – Agricultural agricultural products – Agricultural market access (AMA)market access (AMA)

Non-agricultural market access Non-agricultural market access (NAMA)(NAMA)

Agreements on Goods (2)Agreements on Goods (2)

Commitments for tariff cutsCommitments for tariff cuts Binding tariffs -not to increaseBinding tariffs -not to increase tariffs above the listed ratestariffs above the listed rates Trade distortion by only tariffs – no export Trade distortion by only tariffs – no export

subsidy, no domestic support, no quotasubsidy, no domestic support, no quota Separate agriculture agreement and Separate agriculture agreement and

textile agreementstextile agreements But special and differential treatments for But special and differential treatments for

LDCs LDCs

Agriculture Agreement: Agriculture Agreement: fairer markets for farmers

market accessmarket access — various trade — various trade restrictions confronting importsrestrictions confronting imports

domestic supportdomestic support — subsidies and other — subsidies and other programmes, including those that raise or programmes, including those that raise or guarantee farm gate prices and farmers’ guarantee farm gate prices and farmers’ incomesincomes

export subsidiesexport subsidies and other methods used and other methods used to make exports artificially competitive.to make exports artificially competitive.

Market access in Agriculture AgreementMarket 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

Domestic Support to Agriculture: Domestic Support to Agriculture: some you can, some you can’tsome you can, some you can’t

The main complaint: support to domestic The main complaint: support to domestic prices, or subsidize production encourage over-prices, or subsidize production encourage over-production. This results in low-priced dumping production. This results in low-priced dumping on world markets. on world markets.

The Agriculture Agreement distinguishes The Agriculture Agreement distinguishes between support programmes that stimulate between support programmes that stimulate production directly, and those that are production directly, and those that are considered to have no direct effect.considered to have no direct effect.

If domestic policies have a direct effect on If domestic policies have a direct effect on production and trade, then those have to be cut production and trade, then those have to be cut back, Otherwise not. back, Otherwise not.

Domestic Support in Agriculture: The Amber Domestic Support in Agriculture: The Amber BoxBox

WTO members calculated how much direct support WTO members calculated how much direct support they were providing per year for the agricultural sector they were providing per year for the agricultural sector (using calculations known as “total aggregate (using calculations known as “total aggregate measurement of support” or “Total AMS”) in the base measurement of support” or “Total AMS”) in the base years of 1986–88. years of 1986–88.

Developed countries agreed to reduce these figures by Developed countries agreed to reduce these figures by 20% over six years starting in 1995.20% over six years starting in 1995.

Developing countries agreed to make 13% cuts over 10 Developing countries agreed to make 13% cuts over 10 years. years.

Least-developed countries do not need to make any Least-developed countries do not need to make any cuts. (If they were providing subsidy at all when the cuts. (If they were providing subsidy at all when the agreement was signed!)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”

Domestic Support to Agriculture: The Green Domestic Support to Agriculture: The Green Box Box

Measures with minimal impact on trade can be Measures with minimal impact on trade can be used freely — they are in a “green box”.used freely — they are in a “green box”.

They include government services such as They include government services such as research, disease control, infrastructure and food research, disease control, infrastructure and food security. security.

They also include payments made directly to They also include payments made directly to farmers that do not stimulate production, such as farmers that do not stimulate production, such as certain forms of direct income support, assistance certain forms of direct income support, assistance to help farmers restructure agriculture, and direct to help farmers restructure agriculture, and direct payments under environmental and regional payments under environmental and regional assistance programmes.assistance programmes.

Domestic Support to Agriculture: The blue Domestic Support to Agriculture: The blue BoxBox

Certain direct payments to farmers are permitted, Certain direct payments to farmers are permitted, where the farmers are required to limit production where the farmers are required to limit production (sometimes called “blue box” measures)(sometimes called “blue box” measures)

Domestic support is also permitted for certain Domestic support is also permitted for certain government assistance programmes to encourage government assistance programmes to encourage agricultural and rural development in developing agricultural and rural development in developing countries, and other support on a small scale (“de countries, and other support on a small scale (“de minimis”) when compared with the total value of the minimis”) when compared with the total value of the product or products supported (5% or less in the case product or products supported (5% or less in the case of developed countries and 10% or less for developing of developed countries and 10% or less for developing countries).countries).

Least-developed countries do not need to make any Least-developed countries do not need to make any cuts. But important is what they have committed during cuts. But important is what they have committed during while signing the agreement. while signing the agreement.

Agreements related to standards and safetyAgreements related to standards and safety

Sanitary and Phytosanitary Measures Agreement or Sanitary and Phytosanitary Measures Agreement or SPSSPS

(It allows countries to set their own standards. But it (It allows countries to set their own standards. But it also says regulations must be based on science. They also says regulations must be based on science. They should be applied only to the extent necessary to should be applied only to the extent necessary to protect human, animal or plant life or health. And they protect human, animal or plant life or health. And they should not arbitrarily or unjustifiably discriminate should not arbitrarily or unjustifiably discriminate between countries where identical or similar between countries where identical or similar conditions prevail.)conditions prevail.)

The Technical Barriers to Trade Agreement (TBT) tries The Technical Barriers to Trade Agreement (TBT) tries to ensure that regulations, standards, testing and to ensure that regulations, standards, testing and certification procedures do not create unnecessary certification procedures do not create unnecessary obstacles.obstacles.

Agreement on Textile and Agreement on Textile and clothing and Non-clothing and Non-

agricultural market access agricultural market access (NAMA)(NAMA)

Textile and garments exports and MFA Textile and garments exports and MFA quotaquota

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

Textiles and ClothingTextiles and Clothing

• Quotas led to expansion of garment Quotas led to expansion of garment activities in Bangladeshactivities in Bangladesh

• Bangladesh’s exports increased rapidlyBangladesh’s exports increased rapidly• Quotas on China maintained until 2008Quotas on China maintained until 2008• Even after quota elimination, tariffs remain Even after quota elimination, tariffs remain

a major barriersa major barriers• Tariff reductions for garments will now be Tariff reductions for garments will now be

decided under Non-agricultural talks.decided under Non-agricultural talks.

NAMANAMA

Key issuesKey issues• Product coverage by tariff linesProduct coverage by tariff lines• Binding tariffsBinding tariffs• Tariff Peaks and EscalationTariff Peaks and Escalation• Tariff Reduction FormulaTariff Reduction Formula• Tariff bindingTariff binding• Non-Tariff Barriers (NTBs)Non-Tariff Barriers (NTBs)• Preference ErosionPreference Erosion• Special treatments for LDCsSpecial treatments for LDCs

Bound tariffBound tariff

A commitment, under the GATT, by a A commitment, under the GATT, by a country not to raise the tariff on an country not to raise the tariff on an item above a specified level, called item above a specified level, called the bound rate or bound tariffthe bound rate or bound tariff

Bound Tariff of Bangladesh (2006 latest)Bound Tariff of Bangladesh (2006 latest)

Applied and Bound TariffsApplied and Bound Tariffs

Country groupCountry group Applied tariff Applied tariff raterate

Bound tariff Bound tariff raterate

Industrial economiesIndustrial economies 4.04.0 4.74.7

Developing economiesDeveloping economies 13.113.1 20.820.8

Latin America and the Latin America and the CaribbeanCaribbean

10.110.1 18.618.6

East Asia and the PacificEast Asia and the Pacific 9.89.8 16.616.6

South AsiaSouth Asia 27.727.7 56.156.1

Other Europe and Central Other Europe and Central AsiaAsia

9.69.6 14.914.9

Middle East and North AfricaMiddle East and North Africa 14.414.4 26.826.8

Sub-Saharan AfricaSub-Saharan Africa 16.516.5 19.819.8

Tariff Peaks and EscalationTariff Peaks and Escalation Tariff Peaks: In a tariff schedule, a single tariff or a small Tariff Peaks: In a tariff schedule, a single tariff or a small

group of tariffs that are particularly high, often defined group of tariffs that are particularly high, often defined as greater than three times the average nominal tariff. as greater than three times the average nominal tariff.

e.g.e.g. Textile and Clothing Textile and Clothing In the US, EU and Canada, In the US, EU and Canada, large proportion of T&C imports are subject to high large proportion of T&C imports are subject to high tariffs.tariffs.

Tariff escalation: Tariffs increase with processing of Tariff escalation: Tariffs increase with processing of productsproducts

the tendency is usually towards higher tariff on the tendency is usually towards higher tariff on processed goods than on the raw materials from which processed goods than on the raw materials from which they are produced. This causes the effective rate of they are produced. This causes the effective rate of protection on these goods to be higher than the nominal protection on these goods to be higher than the nominal rate and puts LDC producers of primary products at a rate and puts LDC producers of primary products at a disadvantage. disadvantage.

Footwear and Leather – subject to peaks and escalationFootwear and Leather – subject to peaks and escalation

Tariff Reduction FormulaTariff Reduction Formula

Swiss Formula: Those members of the WTO which or who Swiss Formula: Those members of the WTO which or who have higher tariffs will face greater reduction while those have higher tariffs will face greater reduction while those maintaining lower tariffs will face lower reduction.maintaining lower tariffs will face lower reduction.

The formula The formula Z = AX/(A+X)Z = AX/(A+X) where X = initial tariff ratewhere X = initial tariff rate A = coefficient and maximum tariff rateA = coefficient and maximum tariff rate Z = resulting lower tariff rate (end of period)Z = resulting lower tariff rate (end of period)

How the Swiss formula coefficient defines the maximum How the Swiss formula coefficient defines the maximum final tariff:final tariff:

From the formula, Z=AX/(A+X),From the formula, Z=AX/(A+X),as the initial tariff X rises to infinity, X/(A+X) approaches 1,as the initial tariff X rises to infinity, X/(A+X) approaches 1,resulting in Z=A*1.resulting in Z=A*1.

Swiss FormulaSwiss Formula

Rules of originRules of origin Sanitary and phyto-sanitary measuresSanitary and phyto-sanitary measures Other safety and technical standardsOther safety and technical standards Labour standards and environmental Labour standards and environmental

protectionprotection Quality standardsQuality standards Contingency protection measures such Contingency protection measures such

as safeguards, and anti-dumping and as safeguards, and anti-dumping and countervailing measurescountervailing measures

Non-Tariff barriersNon-Tariff barriers

Preference ErosionPreference Erosion

For LDCs, NAMA commitments not required, For LDCs, NAMA commitments not required, but preference erosion will be a problembut preference erosion will be a problem

• decrease in the margin between a preferential decrease in the margin between a preferential tariff rate and the MFN ratetariff rate and the MFN rate

LDCs also enjoy preferential treatment on a LDCs also enjoy preferential treatment on a non-reciprocal basis in various RTAsnon-reciprocal basis in various RTAs

• NAMA tariff cuts can also have adverse NAMA tariff cuts can also have adverse preference erosion implications for LDCspreference erosion implications for LDCs

Preference erosion for BangladeshPreference erosion for Bangladesh

The EU and Canadian markets – The EU and Canadian markets – impact would be negativeimpact would be negative

The US market – impact could be The US market – impact could be positivepositive

Tariffs paid on Bangladesh’s exports in Tariffs paid on Bangladesh’s exports in the US marketthe US market

US imports US imports fromfrom

US imports in US imports in 2008 ($ 2008 ($ million)million)

Duty paid ($ Duty paid ($ million)million)

Average Average import duty import duty (%)(%)

United United KingdomKingdom

59,57259,572 399399 0.670.67

FranceFrance 44,22644,226 391391 0.880.88

BangladeshBangladesh 3,9803,980 574574 14.4214.42

Duty-free & Quota-free Market Duty-free & Quota-free Market AccessAccess

Longstanding demand of LDCsLongstanding demand of LDCs

Non-binding DFQF exist such EBANon-binding DFQF exist such EBA

But, the US market does not provide But, the US market does not provide DFQF access to BangladeshDFQF access to Bangladesh

Hong Kong Ministerial Declaration Hong Kong Ministerial Declaration urged developed countries to provide urged developed countries to provide DFQFDFQF

• But, developed countries facing But, developed countries facing difficulties were asked to grant duty-free difficulties were asked to grant duty-free of 97% product linesof 97% product lines

Duty-free and quota-free market Duty-free and quota-free market access access

Developing countries in a position to Developing countries in a position to do so were also urged to provide do so were also urged to provide duty-free offers to LDCsduty-free offers to LDCs

The 3% exclusion could imply The 3% exclusion could imply meaningless benefits for Bangladeshmeaningless benefits for Bangladesh

Let us move to part 2Let us move to part 2