GENERAL AGREEMENT ON TARIFF AND TRADE ANDWORLD TRADE ORGANISATION

BACKGROUND

PRINCIPLES ADOPTED BY GATT

Between 1947 and the last year of GATT there were 8 rounds of negotiations between the participating countries.

Between 1947 and the last year of GATT there were 8 rounds of negotiations between the participating countries.

The first 6 rounds were related to curtailing tariff rates. 7th round included the non tariff obstacles.

The first 6 rounds were related to curtailing tariff rates. 7th round included the non tariff obstacles.

The 8th round was entirely different from the previous rounds because it included a number of new subjects for consideration. This 8th round was

known as “URUGUAY ROUND”.

The 8th round was entirely different from the previous rounds because it included a number of new subjects for consideration. This 8th round was

known as “URUGUAY ROUND”.

The discussions at this round only gave birth to WORLD TRADE ORGANISATION (WTO).

The discussions at this round only gave birth to WORLD TRADE ORGANISATION (WTO).

ROUNDS OF GATT NEGOTIATION

Following the UR agreement, GATT was converted from a provisional agreement into a formal international

organization called World Trade Organization (WTO), with effect from January 1, 1995

FROM GATT TO WTO

World Trade Organization (WTO)• The World Trade Organization (WTO) deals with the global rules

of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.

• WTO is an organization for liberalizing trade, a forum for governments to negotiate trade agreements and a place for them to settle trade disputes

• At the heart of the system — known as the multilateral trading system — are the WTO’s agreements, negotiated and signed by a large majority of the world’s trading nations, and ratified in their parliaments.

• The WTO has larger membership than GATT, with the numbers being 153. India is one of the founder members of GATT.

Functions of WTO:

WTO is based in Geneva, Switzerland. Its functions

are:

Administering the multilateral trade agreements

which together make up the WTO

Acting as a forum for multilateral trade negotiations

Seeking to resolve trade disputes

WTO is not a “Free trade” institution. It permits

tariffs and other forms of protection but only in

limited circumstances.

Principles of WTO• Non discrimination• Free Trade: Promote free trade between nations

through negotiations. • Stability in the trading system: Member

countries are committed not to raise tariff and non tariffs barriers arbitrarily.

• Promotion of Fair Competition: WTO provides for transparent, fair and undistorted competition.

• It discourages unfair competitive practices such as export subsidies and dumping.

The Uruguay Round (1986-1994)

• The results of the Uruguay Round (UR) were signed in Marrakech,

Morocco on 15 April 1994 .The WTO came into being on 1 January

1995 by virtue of the Agreement establishing the WTO.

• The scope of the multilateral trading system was broadened from

trade in goods (GATT) to encompass trade in services (GATS) and

trade related aspects of intellectual property rights (TRIPS). It was a

rule-based global trading system complete with its own dispute

resolution procedures .

• The “Single Undertaking” concept

The multilateral trade agreements under the WTO system are treated

as a single undertaking which means that every member state of the

WTO is a party to every one of these agreements and must implement

them accordingly.

TRIPS (Trade Related Intellectual Property Rights Agreement)

• The agreement requires member countries to provide patent

protection to all products or processes in all fields. The

protection is granted subject to the following three

conditions:

– The product or process is a new one.

– It contains an inventive step.

– It is capable of industrial application for 20 years from the

grant of the patent

TRIPS (Trade Related Intellectual Property Rights Agreement)

• TRIPS agreement covers the following seven intellectual properties:– Patents– Copyright and other related Rights– Geographical Indications– Industrial Designs– Trade marks– Layout design of integrated circuits– Undisclosed information including trade secrets

GATS (General Agreement on Trade in Services)The GATS agreement covers four modes of supply for the delivery of services in cross-border trade:

Criteria Supplier Presence

Mode 1: Cross-border supply

Service delivered within the territory of the Member, from the territory of another Member. Eg: transborder data flows

Mode 2: Consumption abroad

Service delivered outside the territory of the Member, in the territory of another Member, to a service consumer of the Member. Eg : Tourism

Service supplier not present within the territory of the member

Mode 3: Commercial presence

Service delivered within the territory of the Member, through the commercial presence of the supplier (provision of services abroad through FDI or representative offices).

Mode 4: Presence of a natural person

Service delivered within the territory of the Member, with supplier present as a natural person (entry and temporary stay of foreign consultants)

Service supplier present within the territory of the Member

TRIMS (Trade Related Investment Measures)

• TRIMS refers to certain conditions or restrictions imposed by a government in respect of foreign investment in the country.

• In the late 1980's, there was a significant increase in foreign direct investment throughout the world.

• TRIMS are widely employed by developing countries. The Agreement on TRIMs provides that no contracting party shall apply any TRIM which is inconsistent with the WTO articles

Anti Dumping Measures:

• The WTO Agreement provides clarity in the method of determining that a product is dumped.

• A product is regarded as dumped when its export price is less than the normal price in the exporting country or its cost of production plus a reasonable amount of administrative, selling and any other costs.

• Anti-dumping duties are to be imposed on goods that are deemed to be dumped and causing injury to producers of competing products in the importing country. These duties are equal to the difference between the goods’ export price and their normal value, if dumping causes injury.

• Countervailing measures - Action taken by the importing country, usually in the form of increased duties to offset subsidies given to producers or exporters in the exporting country.

Evaluation of WTO

• The WTO members now account for over 97% of the international trade indicating the potential of bringing about an orderly development of international trade.

Benefits of WTO:• GATT / WTO has made significant achievements in

reducing tariff and non tariff barriers to trade. Developing countries too have been benefiting significantly.

• Liberalization of investments has been fostering economic growth of a number of countries.

• It has a system in place to settle trade disputes between nations.

• It has a mechanism to deal with violation of trade agreements.

Drawbacks:• Negotiations and decision making in the WTO

are dominated by the developed countries.

• Many developing countries do not have the financial and knowledge resources to effectively participate in WTO discussions and negotiations.

• Due to the dependence of developing countries on the developed ones, the developed countries are able to resort to arms twisting tactics.

Tariff: A tariff is a tax. It adds to the cost of imported goods and is one of several trade policies that a country can enact.

Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports but are not in the usual form of a tariff. Some common examples of NTB's are anti- dumping measures and countervailing duties.

sanitary and phytosanitary measures (SPS): • SPS measures refer to any measure, procedure, requirement,

or regulation, taken by governments to protect human, animal, or plant life or health from the risks arising from the spread of pests, diseases, disease causing organisms, or from ‑additives, toxins, or contaminants found in food, beverages, or feedstuffs.

• Specific Tariffs : A fixed fee levied on one unit of an imported good is referred to as a specific tariff. For example, a country could levy a $15 tariff on each pair of shoes imported, but levy a $300 tariff on each computer imported. Ad Valorem Tariffs this type of tariff is levied on a good based on a percentage of that good's value. An example of an ad valorem tariff would be a 15% tariff levied by Japan on U.S. automobiles. Import Quotas : An import quota is a restriction placed on the amount of a particular good that can be imported.

• free trade area : Trade within the group is duty free but members set their own tariffs on imports from non-members (e.g. NAFTA).

WTO: Benefits for business• Creation of a stable, rule based, multilateral trading regime• Market access translates into market opportunities• The rule based system creates certain rights of access

- Security of accesstariff bindings and disciplines on barriers to trade whether tariff or non tariff. It also provides non discriminatory treatment of products and services.- Stability of accessthe application of uniform rules in key areas of the trading process e.g. customs valuation, import licenses etc.- Rights against unfair trade practices for – Domestic industry– Export industry– Import industry