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World Trade Organisation – I April 23, 2010

Posted by Chetan Chitre in International Business Management, International Organisations.
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(This note is based on material available on the WTO website www.wto.org on 22nd April, 2010)

Introduction –

The Breton Woods Conference had contemplated 3 institutions for maintaining the global economic balance. These were – (i) International Monetary Fund (IMF) (ii) World Bank (iii) International Trade Organization (ITO)

While the first 2 organizations were formed within the first 5 years of the Breton Woods conference, the formation of ITO got delayed due to inevitable differences between nations on the issue of subjecting their trade to regulation by a global body. 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. The aim was to create the ITO at a UN Conference on Trade and Employment in Havana, Cuba in 1947. Attempts to form the ITO were, however, given up when the US failed to get the ITO charter ratified by its Congress.

What resulted was the General Agreement on Tariffs and Trade (GATT), a forum for negotiating a world-wide agreement on trade related matters formed in 1947. Trade has been a contentious issue and as a result repeated rounds of negotiations failed to yield any significant progress. A brief summary of the various rounds of GATT can be seen from the following table –

Year Place/name Subjects covered Countries
1947 Geneva Tariffs 23
1949 Annecy Tariffs 13
1951 Torquay Tariffs 38
1956 Geneva Tariffs 26
1960-1961 Geneva, Dillon Round Tariffs 26
1964-1967 Geneva, Kennedy Round Tariffs and anti-dumping measures 62
1973-1979 Geneva, Tokyo Round Tariffs, non-tariff measures, “framework” agreements 102
1986-1994 Geneva Uruguay Round Tariffs, non-tariff rules, services, intellectual property, dispute settlement, textiles, agriculture, creation Of WTO, etc 123

The Uruguay Round, which concluded with the Marrakesh Declaration led to the formation of the WTO.

Objectives of the WTO

# To liberalizing trade, while allowing governments to meet social and environmental objectives.

# To act as forum for governments to negotiate trade agreements.

# To settle trade disputes through neutral procedure based on an agreed legal foundation.

# To evolve a system of trade rules which are “transparent” and predictable.

# To achieve overall economic development and well-being.

The Principles of WTO

The trading system should be …

Without Discrimination — a country should not discriminate between its trading partners (giving them equally “most-favoured-nation” or MFN status); and it should not discriminate between its own and foreign products, services or nationals (giving them “national treatment”);

Freer — barriers coming down through negotiation;

Predictable — 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 less developed countries — giving them more time to adjust, greater flexibility, and special privileges.

Functions of WTO –

Based on the above the key functions of WTO include –

(1) To facilitate and act as forum for trade negotiations

(2) Administration of Rules and Procedures

(3) Co-operate with other multilateral institutions such as the World Bank, IMF, etc

(4) To provide trade related technical assistance to member countries

(5) To maintain database on world trade

(6) Administration of plurilateral trade agreements

(7) Oversee national trade policies of member nations

(8) To function as a watchdog for international trade.

Organization ChartWTO Organization Chart

Ministerial Conference – Is the apex body of the WTO comprising of political representatives of member states. The Minister for Commerce or for Trade and Development of each member State usually represents the country at the Ministerial Conference. The Ministerial Conference meets once every 2 years. Being an apex body, the Ministerial Conference is the key decision-making body of the WTO. It also has the responsibility to give overall guidance and directions to the working of the WTO. For a detailed note on Ministerial Conferences of WTO please click here.

General Council – The General Council is the highest executive body of the WTO. It meets regularly in Geneva 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. Decisions taken at the Ministerial Conference are executed or implemented at the level of the General Council. The General Council also functions as a Dispute Settlement Body of the WTO as also the Trade Policy Review Body.

Reporting to the General Body, are a number of Councils which work on the key areas of the WTO. These are –

Council on Trade in Goods – This comprises of committees on (i) Market Access, (ii) Agriculture, (iii) Sanitary and Phytosanitary measures, (iv) Technical barriers to Trade, (v) Subsidies and Countervailing measures, (vi) Anti-dumping practices, (vii) Customs Valuation, (viii) Rules of Origin, (ix) Import Licensing, (x) Trade Related Investment Measures, (xi) Safeguards, (xii) Plurilateral Agreement on Information Technology.

Council for Trade in Services – This includes working parties on GATS Rules and Committee on Trade in Financial Services and other specific agreements. It also includes committees on plurilateral agreements on Trade in Civil aircrafts and Government procurements.

TRIPS Council – looks into matters connected to the Agreement on Trade Related Intellectual Property Rights

Trade Negotiations Committee – This committee was created under the Doha Round to carry forward pending negotiations on specific issues and prepare drafts agreements for consideration of the Ministerial Conference.

Other Committees – Apart from the above there are various committees and working groups assisting the General Council on various specific trade related issues such as – (i) Trade and Environment (ii) Trade and Development (iii) Regional Trade Agreements (iv) Balance of Payments Restrictions (v) Budget Finance and Administration (vi) Accession (vii) Trade and debt finance (viii) Trade and Technology transfer, etc.

As can be seen in the Organization Chart, the functioning of the WTO covers following major areas –

Dispute Settlement

The dispute settlement system of the GATT as framed under the Uruguay Round Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) is generally considered to be one of the cornerstones of the multilateral trade order.

For this purpose, the General Council is mandated to meet and exercise the authority of a Dispute Settlement Body (DSB) under the DSU.

As per the DSU an aggrieved member may make a request for consultation with another member who has allegedly violated the provisions of the WTO. The violating member in such case should start consultations within a period of 30 days from receipt of such a request.

If after 60 days from the request for consultations there is no settlement, the complaining party may request the establishment of a Dispute Settlement Panel. Where consultations are denied, the complaining party may move directly to request a panel. The parties may voluntarily agree to follow alternative means of dispute settlement, including good offices, conciliation, mediation and arbitration.

Panel procedures are set out in detail in the DSU. It is envisaged that a panel will normally complete its work within six months or, in cases of urgency, within three months. The DSU also provides for an appellate mechanism in the event that one of the parties is not satisfied with the decision of the panel.

An Appellate Body is established, composed of seven members. The appeal is limited to issues of law covered in the panel report and legal interpretations developed by the panel.

Once the panel report or the Appellate Body report is adopted, the party concerned will have to notify its intentions and schedule with respect to implementation of adopted recommendations. The DSB will keep the implementation under regular surveillance until the issue is resolved.

In event of non-implementation of the report by the party, the DSU provides for rules for compensation or the suspension of concessions. One of the central provisions of the DSU reaffirms that Members shall not themselves make determinations of violations or suspend concessions, but shall make use of the dispute settlement rules and procedures of the DSU.

India has been involved in 18 cases as complainant and in 20 cases as respondent.

Plurilateral Trade Agreements

For the most part, all WTO members subscribe to all WTO agreements. After the Uruguay Round, however, there remained four agreements, originally negotiated in the Tokyo Round, which had a narrower group of signatories and are known as “plurilateral agreements”. All other Tokyo Round agreements became multilateral obligations (i.e. obligations for all WTO members) when the World Trade Organization was established in 1995. The four were:

# Trade in civil aircraft
# Government procurement
# Dairy products
# Bovine meat.

The bovine meat and dairy agreements were terminated in 1997.

Trade Related Intellectual Property Rights –

Ideas and knowledge are an increasingly important part of trade. Most of the value of new medicines and other high technology products lies in the amount of invention, innovation, research, design and testing involved.

Creators can be given the right to prevent others from using their inventions, designs or other creations — and to use that right to negotiate payment in return for others using them. These are “intellectual property rights”.

The extent of protection and enforcement of these rights varied widely around the world; and as intellectual property became more important in trade, these differences became a source of tension in international economic relations.

The WTO’s TRIPS Agreement is an attempt to narrow the gaps in the way these rights are protected around the world, and to bring them under common international rules. It establishes minimum levels of protection that each government has to give to the intellectual property. Governments are allowed to reduce any short-term costs through various exceptions, for example to tackle public health problems.

The second part of the TRIPS agreement looks at different kinds of intellectual property rights and how to protect them.

Copyright – The TRIPS agreement protection from unauthorized copying in any manner of computer programs, sound recordings, films, live performances, etc. It also expands international copyright rules to cover rental rights, prevent unauthorized recording, reproduction and broadcast of live performances, etc. for a period of 50 years.

Trademarks – The agreement defines what types of signs must be eligible for protection as trademarks, and what the minimum rights conferred on their owners must be. It says that service marks must be protected in the same way as trademarks used for goods. Marks that have become well-known in a particular country enjoy additional protection.

Geographical indications – A place name is sometimes used to identify a product. This “geographical indication” does not only say where the product was made. More importantly, it identifies the product’s special characteristics, which are the result of the product’s origins.

Well-known examples include “Champagne”, “Scotch”, “Tequila”, and “Basmati” rice. Wine and spirits makers are particularly concerned about the use of place-names to identify products, and the TRIPS Agreement contains special provisions for these products. But the issue is also important for other types of goods.

Industrial designs – Under the TRIPS Agreement, industrial designs must be protected for at least 10 years. Owners of protected designs must be able to prevent the manufacture, sale or importation of articles bearing or embodying a design which is a copy of the protected design.

Patents – The agreement says patent protection must be available for inventions for at least 20 years. Patent protection must be available for both products and processes, in almost all fields of technology. Governments can refuse to issue a patent for an invention if its commercial exploitation is prohibited for reasons of public order or morality. They can also exclude diagnostic, therapeutic and surgical methods, plants and animals (other than microorganisms), and biological processes for the production of plants or animals (other than microbiological processes).

Plant varieties, however, must be protectable by patents or by a special system (such as the breeder’s rights provided in the conventions of UPOV — the International Union for the Protection of New Varieties of Plants).

Under a special declaration issued by the Doha Ministerial Conference agreed that the TRIPS Agreement does not and should not prevent members from taking measures to protect public health. The declaration also extends exemptions on pharmaceutical patent protection for least-developed countries until 2016.

Integrated circuits layout designs – The basis for protecting integrated circuit designs (“topographies”) in the TRIPS agreement is the Washington Treaty on Intellectual Property in Respect of Integrated Circuits, which comes under the World Intellectual Property Organization. This was adopted in 1989 but has not yet entered into force. The TRIPS agreement adds a number of provisions: for example, protection must be available for at least 10 years.

Undisclosed information and trade secrets – Trade secrets and other types of “undisclosed information” which have commercial value must be protected against breach of confidence and other acts contrary to honest commercial practices. But reasonable steps must have been taken to keep the information secret. Test data submitted to governments in order to obtain marketing approval for new pharmaceutical or agricultural chemicals must also be protected against unfair commercial use.

General Agreement on Trade in Services –

The Council for Trade in Services operates under the guidance of the General Council and is responsible for overseeing the functioning of the General Agreement on Trade in Services (GATS). Services important from the International Trade Services include –

# Financial Services

# Telecommunication

# Information Technology

# Transportation and Logistics Services

The Council works on drafting guidelines regarding technical standards, licensing and qualification requirements, subsidies, government procurement and safeguards and such other aspects related to international trade in services.

The basic principles of the GATS include freedom to –

# Export Services

# Set-up offices and commercial presence in foreign countries for providing services

# Temporarily move Human Resources to foreign country for providing services

# Consumers to travel to foreign countries to avail services

To be continued . . .

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