Question One- Detailed Note on WTO

The World Trade Organization (WTO) is an international organization that was established to
supervise and liberalize world trade. The WTO is the successor to the General Agreement on
Tariffs and Trade (GATT), created in 1947 in the expectation that it would soon be replaced by a
specialized agency of the United Nations (UN), called the International Trade Organization
(ITO). Although the ITO never materialized, the GATT proved remarkably successful in
liberalizing world trade over the next five decades. In late 1980 there was a need for a stronger
multilateral origination to monitor trade and resolve trade disputes. After the completion of the
Uruguay Round (1986 -1994) of multilateral trade negotiations, the WTO began operations on
1st January 1995.
WTO Agreements:

GATT is now the WTO’s principal rule-book for trade in goods. The Uruguay Round also created
new rules for dealing with trade in services, relevant aspects of intellectual property, dispute
settlement and trade policy reviews. Through these agreements, WTO members operate a non-
discriminatory trading system that spells out their rights and their obligations.

(a) Goods:

From 1947 to 1994, GATT was the forum for negotiating lower customs duty rates and other
trade barriers; the text of the General Agreement spelt out important, rules, particularly non-
discriminations since 1995, the updated GATT has become the WTO s umbrella agreement for
trade in goods. It has annexes dealing with specific sectors such as agriculture and textiles and
with specific issues such as, state trading, product standards, subsidies and action were taken
against dumping.

(b) Services:

Banks, insurance firms, telecommunication companies, tour operators, hotel chains and
transport companies looking to do business abroad can now enjoy the same principles of free
and fair that originally only applied to trade in goods. These principles appear in the new
General Agreement on Trade in Services (GATS).

(c) Intellectual Property:

The WTO’s intellectual property agreement amounts to rules for trade and investment in ideas
and creativity. The rules state how copyrights, patents, trademarks, geographical names used to
identify products, industrial designs, integrated circuit layout designs and undisclosed
information such as trade secrets “intellectual property” should be protected when trade is
involved.

(d) Dispute Settlement:

The WTO’s procedure for resolving trade quarrels under the Dispute Settlement Understanding
is vital for enforcing the rules and therefore, for ensuring that trade flows smoothly. Countries
bring disputes to the WTO if they think their rights under the agreements are being infringed.
Judgments by specially appointed independent experts are based on interpretations of the
agreements and individual countries’ commitments. The system encourages countries to settle
their differences through consultation. Failing that, they can follow a carefully mapped out,
stage-by-stage procedure that includes the possibility of the ruling by a panel of experts and the
chance to appeal the ruling on legal grounds. Confidence in the system is borne out by the
number of cases brought to the WTO, around 300 cases in eight years compared to the 300
disputes dealt with during the entire life of GATT (1947-94).

(e) Policy Review:

The Trade Policy Review Mechanism’s purpose is to improve transparency, to create a greater
understanding of the policies that countries are adopting and to assess their impact. Many
members also see the reviews as constructive feedback on their policies. All WTO members
must undergo periodic scrutiny, each review containing reports by the country concerned and
the WTO Secretariat.

The Objectives of the World Trade Organization (WTO) is

detailed as follows:

a) Implement New World Trade System- To implement the new world trade system as
envisioned in the set-out Agreement.

b) Promote World Trade- To promote World Trade in a manner that benefits every country.

c) Ensure Balance- To ensure that developing countries secure a better balance in the sharing of
advantages resulting from the expansion of international trade corresponding to their
development needs.

d) Demolish Hurdles- To demolish all hurdles to an open world trading system and usher in
international economic renaissance because the world trade is an effective instrument to foster
economic growth.

e) Increase Level of Production and Productivity-To increase the level of production and
productivity with a view to ensuring an equal employment in the world.
f) Expand and Utilize World Resources: To expand and utilize world resources to its full
capacity.

g) Improve Level of Living-To improve the level of living for the global population and speed up
the economic development of the nation’s members.

Functions and the Role of World Trade Organization (WTO)

The former GATT was not an official organization; it was merely a legal arrangement. The WTO
is a new international organization that was set up as a permanent body. The main function is
to act as a watchdog within the realm of trade in goods, trade in services, foreign investment,
and intellectual property rights etc. The following: Article II has set out the following five
functions of WTO.

1. Facilitate Operations:

The WTO shall facilitate the implementation, administration and operation. The objectives of
this Agreement and Multilateral Trade Agreements are to provide the framework for the
implementation, administration and operation of the plural lateral Trade Agreement.

2. Provide the forum For Negotiations:

The WTO shall provide the forum for negotiations among its members concerning their
multilateral trade relations in matters dealt with under the Agreement in the Annexes to this
Agreement.

3. Administer Rules and Procedures:

The WTO shall administer the Understanding the Understanding on Rules and Procedures
Governing the Settlement of Disputes.

4. Administer Trade Policy Review Mechanism:

The WTO shall administer Trade Policy Review Mechanism.

5. Cooperate with Affiliated Agencies:

With a view to achieving greater coherence in global economic policymaking, the WTO shall
cooperate, as appropriate, with the International Monetary Fund (IMF) and with the
International Bank for Reconstruction and Development (BRD) and its affiliated agencies.
 Question Two-Capital Account

In macro-economic and international finance, the capital account (also known as financial
account) is one of two primary components of the balance payments, the other being the
current account. Whereas the current account reflects a nations net income, the capital
account reflects net change in national ownership of assets. A surplus in the capital account
means money flowing into the country, but unlike a surplus in the current account, the inbound
flows will effectively be borrowings or sales of assets rather than earnings. A deficit in the
capital account means money flowing out of the country, but it also suggests the nation is
increasing its claims on foreign assets. The term “capital account “is used with a narrower
meaning by the International Monetary Fund (IMF) and affiliated sources. The IMF splits what
the rest of the world calls the capital account into two top-level divisions: financial account and
capital account, with by far the bulk of the transactions being recorded in its financial account.
The capital account in macro-economics.

The capital account has two main subaccounts:

1. Acquisition and Disposal of Non-produced, Non-financial Assets: This measures the purchase
and sale of two types of assets: tangible and intangible assets.

Tangible assets include the rights to natural resources, such as mineral rights, electromagnetic
spectrum, and offshore drilling rights.

Intangible assets include patents, copyrights, and trademarks. They also include franchises and
leases. An example is the receipts of United States-based sports leagues to establish franchises
in Canada.

2. Capital Transfer: There are three components of the capital transfer sub-account. The first is
insured catastrophic losses. These are large, but infrequent, insurance payments from foreign
insurance companies.

The second component of this sub-account is debt forgiveness. The only part of the debt that is
measured is the principal and any overdue interest payments. Future interest payments that
haven't accrued aren't counted.
The third component is specific to the transfer of U.S. government's assets in the Panama Canal
Commission to the Republic of Panama.

A high-level look:

Capital account= Change in foreign ownership of Domestic assets

Change in domestic ownership of foreign assets

Breaking this down:

Capital account=foreign direct investment +Portfolio investment +Other

Investment +Reserve account
1. Foreign Direct Investment (FDI)- Foreign direct investment (FDI) refers to long-term capital
investment such as the purchase or construction of machinery, building or even whole
manufacturing plants.

2. Portfolio Investment- Portfolio investment refers to the purchase of shares and bonds. It’s
sometimes grouped together with “other” as short-term investments. As with FDI, the income
derived from these assets is recorded in the current account: the capital entry will just be for
any international buying or selling of the portfolio assets.

3. Other Investment-Other investment includes capital flows into bank accounts or provided
as loans. Large short-term flows between accounts in different nations are commonly seen
when the market can take advantage of fluctuations in interest rates and /or the exchange rate
between currencies. Sometimes this category can include the reserve account.

4. Reserve Account- The reserve account is operated by a nation’s central bank to buy and sell
foreign currencies; it can be a source of large capital flows to counteract those originating from
the market. Inbound capital flows (from sales of the accounts foreign currency), especially
when combined with a current account surplus, can cause a rise in value (appreciation) of a
nation’s currency, while outbound flows can cause a fall in value (depreciation).
 References:

Name of Book:

Author

Publication Date:

Unit: 5-Pages: 5:13, 5.14,5.15&5.16

Site Name: www.balance.com/what is capital accounts

Article: Kimberley Amedeo

Date: April 2018

Site: www.yourarticlelibrary.com/trade-2/world-trade-organization-wto-objectives-and-
functions/

Article: Smiti Chand