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World Trade Organisation (WTO)

The rationale comparative

of

international trade is

advantage

so

that

all

countries benefit through open and fair

international trade.

Many countries, particularly South East Asian countries have prospered through exports.

Realising that trade would suffer if there

is

no stability, leading trading nations

entered

into

General

Agreement

on

Tariffs and Trade

ensure

orderly

(GATT) in and

1947-48 to transparent

international trade.

The fundamental principles of such an agreement are

i) Most Favoured Nation (MFN)- treating other people equally Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.

ii) National treatment: Treating foreigners

and locals equally -The second principle is National Treatment which means that imported goods and domestically produced goods will be treated alike, except for the payment of customs

duty at the time of import.

GATT

is

a

multinational

treaty

that

was

signed in 1948 by 102 countries with the

objective of bringing down tariff and non tariff barriers to international trade.

Until 1994, the main concerns of GATT were to check ‘dumping’ and unethical business practices.

Trade barriers are restrictions imposed on movement of goods between countries. Trade barriers are imposed not only on imports but also on exports. The trade barriers can be broadly divided into two broad groups: (a) Tariff Barriers, and (b) Non-tariff Barriers.

TARIFF BARRIERS

Tariff is a customs duty or a tax on products that move across borders. The most important of tariff barriers is the customs duty imposed by the importing country. A tax may also be imposed by the exporting country on its exports.1 However, governments rarely impose tariff on exports, because, countries want to sell as much as possible to other countries. Barriers like:-

Countervailing Duty: It is imposed on certain imports where products are subsidised by exporting governments. As a result of government subsidy, imports become more cheaper than domestic goods. To nullify the effect of subsidy, this duty is imposed in addition to normal duties.

Anti-dumping Duty: At times, exporters attempt to capture foreign markets by selling goods at rock-bottom prices, such practice is called dumping. As a result of dumping, domestic industries find it difficult to compete with imported goods. To offset anti-dumping effects, duties are levied in addition to normal duties.

NON-TARIFF BARRIERS

A non tariff barrier is any barrier other than a tariff, that raises an obstacle to free flow of goods in overseas markets. Non-tariff barriers, do not affect the price of the imported goods, but only the quantity of imports. Some of the important non-tariff barriers are as follows:

  • 1. Quota System: Under this system, a country may fix in advance, the limit of

import quantity of a commodity that would be permitted for import from various countries during a given period. The quota system can be divided into the following categories:

  • (a) Tariff/Customs Quota

  • (c) Bilateral Quota

(b)

(d)

Unilateral Quota Multilateral Quota

Tariff/Customs Quota: Certain specified quantity of imports is allowed at duty

free or at a reduced rate of import duty. Additional imports beyond the specified

quantity are permitted only at increased rate of duty. A tariff quota, therefore, combines the features of a tariff and an import quota.

Unilateral Quota: The total import quantity is fixed without prior consultations with the exporting countries.

Bilateral Quota: In this case, quotas are fixed after negotiations between the quota fixing importing country and the exporting country.

Multilateral Quota: A group of countries can come together and fix quotas for exports as well as imports for each country.

  • 2. Product Standards: Most developed countries impose product standards for

imported items. If the imported items do not conform to established standards, the

imports are not allowed. For instance, the pharmaceutical products must conform to pharmacopoeia standards.

The World Trade Organisation (WTO) was formed in 1995 with GATT with the objectives to help producers of goods and services, exporters and importers conduct their businesses internationally.

WTO is the only global organization that

deals with

the rules

of

trade between

nations. Ministerial Conference held at least once

in

two

years,

would be the primary

decision making body of the WTO.

Objectives and functions

The key

objective

of

WTO

is

to

promote and

ensure international trade in developing countries. The other major functions include:

Helping trade flows by encouraging nations to adopt discriminatory trade policies.

Promoting

employment, expanding

productions and trade and raising standard of

living and income and resources.

utilising the world’s

Ensuring that developing countries secure a better share of growth in world trade.

Providing forum for trade negotiations. Resolving trade disputes.

They deal with: agriculture, textiles and clothing, banking, telecommunications, government purchases, industrial standards and product safety, food sanitation regulations, intellectual property, and much more.

The WTO agreements are lengthy and complex because they are legal texts covering a wide range of activities

The arguments for a country to join WTO can be listed as follows

  • 1. The system helps promote peace

  • 2. Disputes are handled constructively

  • 3. Rules make life easier for all

  • 4. Free trade cuts the costs of living

  • 5. It provides more choice of products and

qualities

  • 6. Trade raises incomes

  • 7. Trade stimulates economic growth

  • 8. The basic principles make life more efficient

  • 9. Governments are shielded from lobbying

10. The system encourages good government

India

is

a

founder

member

of

World Trade Organization, and

also

treated

as

the

part

of

developing

countries

group

for

accessing

the

concessions

granted by the organization.

What are its Principles?

The agreements of WTO cover everything from trade in goods, services and agricultural products, these agreements are quite complex to understand, however all these agreements are based on some simple principles;

Non-Discrimination

This is a very simple principle which advocates that every member country must treat all its trading partners equally without any discrimination, meaning that if it offers any special concession to one trading partner, such concessions need to be extended to its other trading partners as well in entirety. This principle effectively gets translated into "MFN" or the Most Favored Nation. However, this principle is relaxed in certain exceptional cases, such as if country X has entered into a regional trade agreement with another country Y, then the concessions extended to Y country need not be extended to other non-members of the agreement. Besides these developing countries facing Balance of Payment problems also get concessions, and if a country can prove unfair trade it can retain its power to discriminate.

The Non-discrimination principle is also translated as a principle that would ensure "National Treatment" to all the goods, services or the intellectual property that enters any other countries national borders.

Reciprocity

This Principle reflects that any concession extended by one country to another need to be reciprocated with an equal concession such that there is not a big difference in the countries Payments situation. This was further relaxed for developing countries facing severe Balance of Payments crisis. This principle along with the first principle would actually result in more and more liberalization of the world trade as any country relaxing its trade barriers need to extend it to all other members and this would be reciprocated. Thus progressive liberalization of the world trade was aimed at by WTO.

Transparency

The multilateral trading system is an attempt by governments to make the business environment stable and predictable. Thus this principle ensured that there is lots of transparency in the domestic trade policies of member countries. Moreover, the member countries are required to sequentially phase out the non-tariff barriers and progressively reduce the tariff barriers through negotiations.

Thus, these principles were primarily to serve the purpose of freer and fair trade and also to encourage competitive environment in the global market. This was further supposed to enhance development and Economic reforms in the developing countries over a period of time in a phased manner.

What are the Major Agreements in WTO?

There are several agreements which are agreed upon by member countries in the last round of negotiations under GATT, The Uruguay round (1986-94), which resulted in the formation of WTO The complete set runs to some 30,000 pages consisting of about 60 agreements and separate commitments (called schedules) made by individual members in specific areas such as lower customs duty rates and services market-opening.

The

main

agreements

cover

vast

areas

from

tariff

reduction on specific manufactured goods and services; other agreements deal with trade in Textiles, Agriculture, Services; some other agreements talk about trade in Intellectual Property, cross-border Investments, anti- dumping duties, CVD's, Safeguards, and finally there are few agreements that aim to reduce the Non-Tariff Barriers that hinder trade between countries.