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World Trade Organisation – II April 24, 2010

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

Agreement on Agriculture –

The objective of the Agriculture Agreement is to reform trade in the sector and to make policies more market-oriented. This would improve predictability and security for importing and exporting countries alike.

The new rules and commitments apply to:

# market access — various trade restrictions confronting imports

# domestic support — subsidies and other programs, including those that raise or guarantee farm-gate prices and farmers’ incomes

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

The agreement does allow governments to support their rural economies, but preferably through policies that cause less distortion to trade. It also allows some flexibility in the way commitments are implemented. Developing countries do not have to cut their subsidies or lower their tariffs as much as developed countries, and they are given extra time to complete their obligations. Least-developed countries don’t have to do this at all. Special provisions deal with the interests of countries that rely on imports for their food supplies, and the concerns of least-developed economies.

Market access – The new 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 These have been replaced by tariffs that provide more-or-less equivalent levels of protection.

Numerical targets for agriculture – The reductions in agricultural subsidies and protection agreed in the Uruguay Round. Only the figures for cutting export subsidies appear in the agreement.

Developed
countries

6 years: 1995-2000
Developing
countries

10 years: 1995-2004
Tariffs
average cut for all agricultural products -36% -24%
minimum cut per product -15% -10%
Domestic support
total AMS cuts for sector (base period: 1986-88) -20% -13%
Exports
value of subsidies -36% -24%
subsidized quantities (base period: 1986-90) -21% -14%

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

The base level for tariff cuts was the bound rate before 1 January 1995; or, for unbound tariffs, the actual rate charged in September 1986 when the Uruguay Round began.

Tariff Quotas – It ensured that quantities imported before the agreement took effect could continue to be imported, and it guaranteed that some new quantities were charged duty rates that were not prohibitive. This was achieved by a system of “tariff-quotas” — lower tariff rates for specified quantities, higher (sometimes much higher) rates for quantities that exceed the quota.

Special Safeguards – For products whose non-tariff restrictions have been converted to tariffs, governments are allowed to take special emergency actions (“special safeguards”) in order to prevent swiftly falling prices or surges in imports from hurting their farmers. But the agreement specifies when and how those emergency actions can be introduced (for example, they cannot be used on imports within a tariff-quota).

Domestic support – The main complaint about policies which support domestic prices, or subsidize production in some other way, is that they encourage over-production. This squeezes out imports or leads to export subsidies and low-priced dumping on world markets. The Agriculture Agreement distinguishes between support programs that stimulate production directly, and those that are considered to have no direct effect.

Amber Box – Domestic policies that have a direct effect on production and trade have to be cut back. Developed countries agreed to reduce these figures by 20% (on base year 1986-88) over six years starting in 1995. Developing countries agreed to make 13% cuts over 10 years. Least-developed countries do not need to make any cuts.

Green Box – These are support measures with minimal impact on trade and hence can be used freely. They include government services such as research, disease control, infrastructure and food security. They also include payments made directly to farmers that do not stimulate production, such as certain forms of direct income support, assistance to help farmers restructure agriculture, and direct payments under environmental and regional assistance programs.

Blue Box – Also permitted, are certain direct payments to farmers where the farmers are required to limit production, certain government assistance programs to encourage agricultural and rural development in developing countries, and other support on a small-scale (“de minimis”) when compared with the total value of the product or products supported (5% or less in the case of developed countries and 10% or less for developing countries).

Export subsidies – The agreement requires WTO members to cut both the amount of money they spend on export subsidies and the quantities of exports that receive subsidies. Taking averages for 1986-90 as the base level, developed countries agreed to cut the value of export subsidies by 36% over the six years starting in 1995 (24% over 10 years for developing countries). Developed countries also agreed to reduce the quantities of subsidized exports by 21% over the six years (14% over 10 years for developing countries). Least-developed countries do not need to make any cuts.

Food Aid – Some importing countries depend on supplies of cheap, subsidized food from the major industrialized nations. They include some of the poorest countries, and although their farming sectors might receive a boost from higher prices caused by reduced export subsidies, they might need temporary assistance to make the necessary adjustments to deal with higher priced imports, and eventually to export. A special ministerial decision sets out objectives, and certain measures, for the provision of food aid and aid for agricultural development. It also refers to the possibility of assistance from the International Monetary Fund and the World Bank to finance commercial food imports.

Sanitary and Phytosanitary Measures –

Article 20 of the General Agreement on Tariffs and Trade (GATT) allows governments to act on trade in order to protect human, animal or plant life or health, provided they do not discriminate or use this as disguised protectionism. It allows countries to set their own standards. But it also says regulations must be based on science. They should be applied only to the extent necessary to protect human, animal or plant life or health. And they should not arbitrary or unjustifiably discriminate between countries where identical or similar conditions prevail. In addition, there are two specific WTO agreements dealing with food safety and animal and plant health and safety, and with product standards in general. Both try to identify how to meet the need to apply standards and at the same time avoid protectionism in disguise.

Agreement on Technical Barriers to Trade –

Technical regulations and standards are important, but they vary from country to country. Having too many different standards makes life difficult for producers and exporters. If the standards are set arbitrarily, they could be used as an excuse for protectionism. Standards can become obstacles to trade. But they are also necessary for a range of reasons, from environmental protection, safety, national security to consumer information.

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

However, the agreement also recognizes countries’ rights to adopt the standards they consider appropriate — for example, for human, animal or plant life or health, for the protection of the environment or to meet other consumer interests. Moreover, members are not prevented from taking measures necessary to ensure their standards are met.

Subsidies and Countervailing Measures –

This agreement has two-fold objectives – (i) disciplines the use of subsidies, and (ii) it regulates the actions countries can take to counter the effects of subsidies. It says a country can use the WTO’s dispute settlement procedure to seek the withdrawal of the subsidy or the removal of its adverse effects. Or the country can launch its own investigation and ultimately charge extra duty (known as “countervailing duty”) on subsidized imports that are found to be hurting domestic producers.

Anti-dumping –

If a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be “dumping” the product. Many governments take action against dumping in order to defend their domestic industries. The “Anti-Dumping Agreement” of WTO lays down guidelines on how governments should react to dumping — it disciplines anti-dumping actions.

WTO agreement allows governments to act against dumping where there is genuine (“material”) injury to the competing domestic industry. In order to do that the government has to be able to show that – (i) dumping is taking place, (ii) calculate the extent of dumping (how much lower the export price is compared to the exporter’s home market price), and (iii) that dumping is causing injury to the domestic industry or threatening to do so.

Since inception of WTO in 1995 to 2008, anti-dumping action has been initiated in 137 cases against India as an exporting country out of which measures were taken in 84 cases. As against this 564 anti-dumping cases were initiated by India as an importer, out of measures have so far been taken in 386 cases. The Director General of Anti-Dumping and Allied Duties, Ministry of Commerce is the authority looking into anti-dumping related matters in India.

Agreement on Trade-Related Investment Measures (TRIMs) –

Certain investment related measures can have trade-restrictive and distorting effects. Eg. requirements for local content, local sales or export obligations for trade balancing requirements.

Agreement on TRIMS states that member states shall not impose such trade distorting or trade restrictive stipulations on foreign investments. The Agreement allows for a transition period to members from the date of entry into force of the WTO (two years in the case of developed country Members, five years for developing country Members, and seven years for least-developed country Members).

The Agreement also establishes a Committee on TRIMs to monitor the operation and implementation of these commitments. The agreement also provides for consideration, at a later date, of whether it should be complemented with provisions on investment and competition policy more broadly.

Agreement on Textiles and Clothing

As per the Multi Fiber Agreement (MFA) which has been in force since 1974, the developed countries imposed quotas on exports of yarn, textiles and apparel from developing countries. The MFA has turned out to be an instrument of forced consensus designed to manage textile and apparel trade to the advantage of countries that were fast losing international competitiveness in these lines of production. The developing countries are supposed to have a quota administration mechanism, which would regulate the exports of yarn, textiles and apparel to the MFA listed developed countries.

The Agreement on Textiles and Clothing (ATC) of the WTO stipulates that the MFA to be gradually phased out over a ten-year period commencing 1995 thus integrating trade in textiles and clothing into the GATT on the basis of strengthened GATT rules and disciplines.

The ATC also stipulates that members who maintain non-MFA restrictions not justified under a GATT provision should also bring these into conformity with GATT within one year of the entry into force of the Agreement or phased out progressively during a period not exceeding the duration of the Agreement (that is, by 2005).

A Textiles Monitoring Body (TMB) oversees the implementation of commitments and to prepare reports for the major reviews.

Agreement on Technical Barriers to Trade –

The WTO seeks to extend the Agreement on Technical Barriers to Trade reached in the Tokyo Round. It seeks to ensure that technical negotiations and standards, as well as testing and certification procedures, do not create unnecessary obstacles to trade. However, it recognizes that countries have the right to establish protection, at levels they consider appropriate, for example for human, animal or plant life or health or the environment, and should not be prevented from taking measures necessary to ensure those levels of protection are met. The agreement therefore encourages countries to use international standards where these are appropriate, but it does not require them to change their levels of protection as a result of standardization.

Innovative features of the revised agreement are –

# It covers processing and production methods related to the characteristics of the product itself.

# The coverage of conformity assessment procedures is enlarged.

# Provisions applicable to local government and non-governmental bodies are elaborated in more detail than in the Tokyo Round agreement.

# A Code of Good Practice for the Preparation, Adoption and Application of Standards by standardizing bodies, which is open to acceptance by private sector bodies as well as the public sector, is included as an annex to the agreement.

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