QUICK REVISION MODULE

(UPSC PRELIMS 2022) ECONOMICS

THE WTO
The World Trade Organization (WTO) is the only global international
organization dealing with the rules of trade between nations. At its heart
are the WTO agreements, negotiated and signed by the bulk of the
world’s trading nations and ratified in their parliaments. The goal is to
ensure that trade flows as smoothly, predictably and freely as possible.

FACT FILE

•Location: Geneva, Switzerland

•Established: 1 January 1995
•Created by: Uruguay Round negotiations (1986-94)
•Membership: 164 members representing 98 per cent of world trade
•Budget: 197 million Swiss Francs for 2020
•Secretariat staff: 623
FACT
•Head: Ngozi Okonjo-Iweala

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 •Functions:
– Administering WTO trade agreements
– Forum for trade negotiations
– Handling trade disputes
– Monitoring national trade policies
– Technical assistance and training for developing countries
– Cooperation with other international organizations

WTO MEMBERS AND OBSERVERS

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WTO members Others WTO observers

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The WTO has 164 members, accounting for 98% of world trade. A total of 25 countries
are negotiating membership.

EVOLUTION OF THE WTO

The WTO’s creation on 1 January 1995 marked the biggest reform of

international trade. It also brought to reality — in an updated form —
the failed attempt in 1948 to create an International Trade
Organization. Over the years, efforts and attempts made by GATT to
reinforce and extend the multilateral system, resulted in the Uruguay
Round culminating to the Marrakesh Declaration and the creation of
the WTO (Refer the following timeline related to the evolution of WTO.)

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 GATT YEARS

1947 1964-67 1986-94

Kennedy Uruguay
GATT
Round Round
1960-61 1973-79 1995
Dillon Tokyo
WTO
Round Round

Number of (the Marrakesh

23 26 62 102 123 Declaration)
countries

Transitional Stages
Tariffs &
Tariffs & Non-Tariffs Tariffs, Non-Tariffs
Subjects measures,services,
covered
Tariffs Anti-dumping measures,
measures “Framework” intellectual property,
agreements dispute settlement,
creation of WTO etc
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WTO SECRETARIAT
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– The WTO Secretariat, based in Geneva, is headed by a Director- General.

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Note: The Secretariat does not itself have a decision-making role.

– The Secretariat’s main duties are to supply technical support for the various
councils/committees/Ministerial conferences/ developing, to analyze world
trade etc

ACCESSIONS

To join the WTO, a government has to bring its economic and trade policies in
line with WTO rules and negotiate its terms of entry with the WTO membership.

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 DECISION MAKING OF WTO

WTO is a member-driven consensus-based organization. All major decisions in the WTO are
made by its members. A majority vote is also possible but it has never been used in the WTO.
The WTO’s agreements have been ratified by all members parliaments.

WTO
Highest Authority Second Level Third Level Fourth Level

First level - Second level - Third level - Fourth level -

The Ministerial General Council: Councils for each Subsidiary bodies:
Conference: The Day-to-day work in broad area of trade Each of the higher
Ministerial Conference is between the (each handling a councils (eg. Goods
the topmost decision - Ministerial different broad area council; Services
making body of the WTO, Conferences is of trade, reporting to council etc) has
which has to meet at least handled by the the General subsidiary bodies
once every two years. following three Council): which deals in
bodies: various subjects like
- The Council for agriculture, market
- The General Trade in Goods access, subsidies,
Council (Goods Council) anti-dumping
measures and so on.
- The Dispute - The Council for
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Settlement Body Trade in Services

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(Services Council)
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- The Trade Policy

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Review Body - The Council for

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Trade Related
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Aspects of
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Intellectual Property
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Rights (TRIPS
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Council)

Note: The General Council meets as the Trade Policy Review Body and the Dispute
Settlement body.

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 BASIC PRINCIPLES

PRINCIPLES OF THE TRADING SYSTEM

Trade without discrimination: Most Favoured Nation and National Treatment.

Encouraging development and economic reform, more beneficial for less

developed countries - giving them more time to adjust, greater flexibility, and
special privileges.

Promoting fair competition: discouraging "unfair" practices such as export

subsidies and dumping products etc.

Predictability: through binding and transparency.

Free trade: gradually, through negotiation (lowering tariff and non-tariff barriers
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through "progressive liberalization").

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MOST - FAVOURED NATION

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Non - discriminatory treatment between products of WTO Members. But there are some
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exceptions to these provisions of MFN, e.g. Special exceptions allowed under FTA, special
access to developing countries, protection against unfair trade practices etc.

NATIONAL TREATMENT
Non-discriminatory treatment between imported and domestic products.
Note: National treatment only applies once a product, service, or an item of intellectual
property has entered the market. Therefore, charging customs duty on an import is not a
violation of national treatment.

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 TIMELINE OF MINISTERIAL CONFERENCE

Geneva, Buenos Aires,

Switzerland 30 10-13 December
November-3 2017(The Elevent Nairobi, 15-19
December Ministerial December 2015.
2021(12th Conference TFA
Ministerial signed.)
conference)

Bali, 3-6
Hong Kong,
December Geneva, 15-17
13-18 Decenber
2013(Key December 2011.
2005.
takeaway: Peace
clause)

Doha, 9-13
November 2001(
DDA,NAMA etc Issue Seattle,
taken up: Public November 30
Cancun, 10-14 stockholding, Special
September 2003. December
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and differential
3,1999.
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treatment,
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Compulsory licensing
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etc)
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Singapore, 9-13 Geneva, 18-20

December 1996. May 1998.

SOME RELATED FACTS:

Note: The 12th Ministerial Conference (MC12) will take place from 30 November to 3
December 2021 in Geneva, Switzerland. MC12 was originally scheduled to take place from 8
to 11 June 2020 in Kazakhstan's capital, Nur-Sultan, but was postponed due to the COVID 19
pandemic.

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 DDA: DOHA DEVELOPMENT AGENDA

The Doha Round of trade negotiations which began in 2001 remains unfinished
due to differences among members on various issues (Some of them are shown
below.) DOHA
DEVELOPMENT
AGENDA

• Lowering of
agricultural tariffs
G20 EU
(Including
The Doha
India
Deadlock
and
Brazil) Greater market
US
access to industrial • Deeper cuts in domestic
products and services agricultural subsidies
• Accepting lower EU market
access

WHAT IS TRADE FACILITAION AGREEMENT?

The TFA is an agreement that is for expediting the movement, transit, release, and clearance of goods to
enchance global trade. In order for the TFA to enter force, it was necessary for two thirds of the WTO
membership (110 members) to ratify the Agreement. On 22 February 2017, the two-third requirement
was reached (112 members).
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BACKGROUND OF TFA
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Bureaucratic Unnecassary Restriction

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inefficiencies and costs and delays High cost of trade. on global trade
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red tape. for trades. growth.

NAMA

NAMA (Non-Agricultural Market Access) refers to all products not covered by the Agreement
on Agriculture. They are sometimes referred to as industrial products or manufactured goods.
It is part of the WTO negotiations in Doha Development Round. It aims to reduce both tariffs
and non-tariff barriers.

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 AGREEMENTS

The WTO oversees about 60 different agreements which have the status of international legal
texts. Some of the most important agreements are as follows:

1. GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)

This agreement deals with reduction in trade barrier for goods. Some of the
specific sectors or issues dealt: Agriculture, Health regulations for farm
products (SPS), Textiles and clothing, Product standards (TBT), Investment
measures, Anti-dumping measures, Customs valuation methods, Rules of
origin, Import licensing, Subsidies and counter-measures etc.

GATT EXCEPTIONS AND WAIVERS

The GATT recognized that there are circumstances in which strict adherence to these principles
would be inappropriate.

E.g. measures considered "necessary" to protect public health, provided

General
their application does not constitute arbitrary or unjustifiable
exceptions
discrimination.
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Customs Unions Countries that offer each other more favourable treatment within a cutom`s
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and Free
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union or RTA were allowed to waive full adherence to the MFN clause.
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Trade
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Agreements
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Include exceptions related to national security or balance of payment

Others problem; waivers e.g. permissions granted by WTO Members allowing
another Member to not comply with its normal commitments.

2. GENERAL AGREEMENTS ON TRADE IN SERVICES (GATS)

The GATS was inspired by essentially the same objectives as its
counterpart in merchandise trade, GATT. Services negotiations
in the WTO follow the so-called positive list. West is pushing
hard to move from positive list approach to negative list
approach. India is against this concept as it will throw open
almost whole Indian services sector to western multinational
giants. Negotiations in services under GATS are classified in
4modes, interests of different countries depend upon this
classification –

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 Country A Country B

Mode 1: Cross-border supply

Supply (by e-mail; electronic means)
Juridical or Consumer
natural person
For eg. BPO, KPO or
LPO service. Here, it`s
in India`s interest to
push for liberalization
given its large human
resource pool and
Mode 2: Consumption abroad comprtitive IT industry.

Juridical or Supply
Consumer Consumer
natural person
(traveller,enterprise
buying processing
Mode 3: Commercial presence services etc.)

Juridical or Affiliate Supply

natural person established Consumer

Eg: Education Sector,

Medical sector etc. It is
Mode 4: Presence of natural persons in West`s interest to
push for this mode.
Juridical or
Juridical or natural person Supply
Consumer
natural person (self-employed
etc.)
Eg: Visa fee,its term
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etc.
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3. TRIPS
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The TRIPS Agreement plays a critical role in facilitating trade in knowledge and
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creativity, in resolving trade disputes over intellectual property. Intellectual

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Property comprises 2 distinct forms:

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a) LITERARY & ARTISTIC WORKS

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b) INDUSTRIAL PROPERTY
(TRIPS contains requirements that nations' laws must meet for copyright
rights; geographical indications, including appellations of origin;
industrial designs; integrated circuit layout-designs; patents;
monopolies for the developers of new plant varieties; trademarks; trade
dress; and undisclosed or confidential information etc.)

4. TRIMS
The Agreement on Trade-Related Investment Measures (TRIMS) states that
WTO members may not apply any measure that discriminates against foreign
products or that leads to quantitative restrictions, both of which violate basic
WTO principles E.g., local content requirements.

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 5. AGREEMENT ON AGRICULTURE

Agriculture Agreement is to reform trade in the sector and to make policies

more market oriented. 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.

NON-TARIFF MEASURES (NTMS)

Trade-related
intellectual
Property rights Technical barriers
to trade
Subsidies
Sanitary and
phytosanitary
Quantitative measures
restrictions

Government
purchase Trade in
services
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 THREE "PILLARS" OF THE AGREEMENT ON AGRICULTURE

AGREEMENT ON AGRICULTURE (AOA)

MARKET ACCESS DOMESTIC SUPPORT EXPORT COMPETITION

Article 4, 5 and Article 3, 6, 7 and Article 3, and 8-11
Annex 5 Annexes 2, 3, 4
Tariffs: Green Box Export Subsidies
- Tariffication
- Reduction Anti-Circumvention
Commitments Blue Box
- Food aid
- Export credits
Development Box
Tariffs Rate Quotas

Amber Box
Special Safeguards
- De minimis
- Commitments

Explicit non-tariff This may result in

barriers were dumping of cheap
removed in most products. Safeguards
cases. like SSM, SP etc
comes into play to
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avoid this.
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CATEGORIES OF DOMESTIC SUPPORT

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reduction
EXEMPT FROM REDUCTION commitments

All other
NO/minimal support
Production
effects on Development
limiting
trade or programmes
programmes
production De minimis

Green Box Art. 6.2 Blue Box Amber Box

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 6. THE TECHNICAL BARRIERS TO TRADE AGREEMENT (TBT)

Even though countries’ rights to adopt the standards they consider appropriate, is recognized,
this agreement is to ensure that regulations, standards, testing and certification procedures do
not create unnecessary obstacles.

AGREEMENT ON TECHNICAL BARRIERS TO TRADE

It applies to all goods...
- Technical regulation (mandatory)
- Standards (voluntary)
- Conformity assessment procedures TBT
SPS

But: its provisions do not apply to sanitary or phytosanitary (SPS) MEASURES

THE WTO TBT AGREEMENT

VOLUTARY MANDATORY

Conformity
Assessment
Procedures
Standards Technical
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Regulations
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Safeguarding the
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right of Members to
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Avoid unnecessary
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barriers to regulate for legitimate

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international trade objectives

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(E.g. human health

and safety, environment
Non-discrimination protection, consumer
protection, quality)

Use of relevant international standards

7. THE SANITARY AND PHYTOSANITARY (SPS) AGREEMENT

It came into effect on January 1, 1995 with the establishment of the World Trade
Organization (WTO). The SPS Agreement is a government-to-government interaction and
applies only to those governmental measures that can affect international trade. It is
concerned with the application of food safety and animal and plant health regulations.

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 ECONOMIC INTEGRATION

Economic integration is an arrangement among nations that typically includes the reduction
or elimination of trade barriers and the coordination of monetary and fiscal policies.

Economic
Market

Common
Market

Custom Union

CECA

FTA

PTA

Specialists in this area define seven stages of economic integration as shown in the diagram.
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1. PTA – PREFERENTIAL TRADE AGREEMENT

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A preferential trade agreement, is a trading bloc that gives preferential access to certain
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products from the participating countries. This is done by reducing tariffs but not by abolishing
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them completely. A PTA can be established through a trade pact. It is the first stage of
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economic integration where there is a positive list of products on which duty is to be reduced.
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Some examples:
• Asia-Pacific Trade Agreement (APTA) : It an initiative of the United Nations Economic
and Social Commission for Asia and the Pacific (ESCAP).
• India-Mercosur Preferential Trade Agreement (PTA)

2. FTA – FREE TRADE AGREEMENT

A FTA is a trade bloc which eliminates tariffs, import quotas, and preferences on most (if not
all) goods and services traded between them. Thus, there is only a negative list on which duty
is not reduced E.g.
• Evolution of SAPTA to SAFTA (South Asian PTA to FTA)
• ASEAN FTA (Trade agreement within the Southeast Asian nations)

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 3. CECA COMPREHENSIVE ECONOMIC COOPERATION AGREEMENT
& CEPA COMPREHENSIVE ECONOMIC PARTNERSHIP AGREEMENT
When the countries go beyond FTA and agree for a greater degree of economic intergration
which includes improving the attractives to capital and human resources, and to expand trade
and investment, it would result in CECA or CEPA.

CEPA has a bit wider scope than CECA as it includes trade in services and investments too.

4. CUSTOMS UNION

An agreement among countries to have free trade among themselves and to adopt common
external barriers against any other country interested in exporting to these countries. Some
examples:
• Southern Common Market – Mercosur
• Gulf Cooperation Council (GCC)
• East African Community (EAC)

5. COMMON MARKET

A type of custom union where there are common policies on product regulation, and free
movement of goods and services, capital and labour.
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6. ECONOMIC UNION
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An economic union is a type of trade bloc which is composed of a common market with a
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customs union. The participant countries have both common policies on product regulation,
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freedom of movement of goods, services and the factors of production (capital and labour)
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and a common external trade policy.

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7. MONETARY UNION

When an economic union involves unifying currency, it becomes an economic and monetary
union. E.g. – Euro!

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 INDIA AND FTAS

• India has long-standing commitment to multilateralism under WTO agreements but in

line with global trends, India has made use of FTAs as a key component of its trade and
foreign policy.
• So far, India has mainly focused on partnering with other Asian countries, and in
goods more so than in services (e.g.: Sri Lanka, Afghanistan, Thailand, Singapore, Bhutan,
Nepal, Korea, Malaysia and Japan and regional trade agreements SAFTA and ASEAN).
• Outside Asia, India has signed FTAs with Chile and MERCOSUR.

CONCEPT OF SPAGHETTI-BOWL EFFECT / NOODLE BOWL EFFECT

Concept was propounded by world’s foremost trade economist Prof Jagdish Bhagwati. He
argues that so many FTAs with their differential tariff rates, rules, procedures etc. leads to
complexity and discriminatory trade policy and results in often contradictory outcomes
amongst bilateral and multilateral trade partners.

MEGA-REGIONALISM

Until recently, FTAs were signed mainly bilaterally and regionally but of late PTAs have begun
to transcend into mega-regional agreements, which would encompass a large share of world
GDP and trade. E.g.: TPP, TTIP (trans-Atlantic trade and investment partnership between EU
and USA)
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India
Current Bilateral/Multilateral FTA's
Proposed/Suspended Bilateral/Multilateral FTA's

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