WTO and NTBs

World Trade Organisation A brief background to the formation of WTO

The establishment of World Trade Organization (WTO) as the successor to the GATT on 1 January 1995 under Marrakesh Agreement places the global trading system on a firm constitutional footing with the evolution of international economic. Registration resulted through the Uruguay Round of GATT negotiations. A remarkable feature of the Uruguay Round was that it paved the way for further liberalization of international trade with the fundamental shift from the negotiation approach to the institutional framework envisaged through transition from GATT to WTO Agreement. The GATT 1947 & the WTO co-existed for the transitional period of 1 year in 1994. In January 1995, however the WTO completely replaced the GATT. The membership of the WTO increased from 77 in 1995 to 127 by the end of 1996. India is a founding member of GATT as well as the WTO.

Objectives
1. To ensure the reduction of tariffs and other barriers to trade. 2. To eliminate discriminatory treatment in international trade relation. 3. To facilitate higher standards of living, full employment, a growing volume of real income and effective demand and an increase in production and trade in goods and services of the member nations. 4. To make positive effect, which ensures developing countries, especially the least developed secure a level of share in the growth of international trade that reflects the need of their economic development. 5. To facilitate the optimal use of the worlds resources for sustainable development. 6. To promote an integrated, more viable and durable trading system incorporating all the resolutions of the Uruguay Rounds multilateral trade negotiations .

Principles of WTO
The WTO establishes a framework for trade policies; it does not define or specify outcomes. That is, it is concerned with setting the rules of the trade policy games.[36] Five principles are of particular importance in understanding both the pre-1994 GATT and the WTO: 1. Non-discrimination. It has two major components: the most favoured nation (MFN) rule, and the national treatment policy. Both are embedded in the main WTO rules on goods, services, and intellectual property, but their precise scope and nature differ across these areas. The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members, i.e. a WTO member has to grant the most favorable conditions under which it allows

trade in a certain product type to all other WTO members.[36] "Grant someone a special favour and you have to do the same for all other WTO members."[22] National treatment means that imported goods should be treated no less favorably than domestically produced goods (at least after the foreign goods have entered the market) and was introduced to tackle non-tariff barriers to trade (e.g. technical standards, security standards et al. discriminating against imported goods). 2. Reciprocity. It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule, and a desire to obtain better access to foreign markets. A related point is that for a nation to negotiate, it is necessary that the gain from doing so be greater than the gain available from unilateral liberalization; reciprocal concessions intend to ensure that such gains will materialize. 3. Binding and enforceable commitments. The tariff commitments made by WTO members in a multilateral trade negotiation and on accession are enumerated in a schedule (list) of concessions. These schedules establish "ceiling bindings": a country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade. If satisfaction is not obtained, the complaining country may invoke the WTO dispute settlement procedures. 4. Transparency. The WTO members are required to publish their trade regulations, to maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO. These internal transparency requirements are supplemented and facilitated by periodic country-specific reports (trade policy reviews) through the Trade Policy Review Mechanism (TPRM). The WTO system tries also to improve predictability and stability, discouraging the use of quotas and other measures used to set limits on quantities of imports. 5. Safety valves. In specific circumstances, governments are able to restrict trade. The WTOs agreements permit members to take measures to protect not only the environment but also public health, animal health and plant health. There are three types of provision in this direction: articles allowing for the use of trade measures to attain non-economic objectives;

Articles aimed at ensuring "fair competition"; members must not use environmental protection measures as a means of disguising protectionist policies.

Provisions permitting intervention in trade for economic reasons.

Exceptions to the MFN principle also allow for preferential treatment of developing countries, regional free trade areas and customs unions.

Non-tariff barriers Meaning of non tariff barriers (NTB)

Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports but are not in the usual form of a tariff.

Definition for non tariff barriers (NTB)

Any measure other than high import duties (tariffs) employed to restrict imports. Two such measures are 1. direct price influencers, such as export subsidies or drawbacks, exchange rate manipulations, methods of imports valuation, customs surcharges, lengthy customs procedures, establishment of minimum import prices, unreasonable standards and inspection procedures, and 2. Indirect price influencers, such as import licensing and import. Non tariff barriers, with certain exceptions, are breach of WTO rules but, nevertheless, their overall use has been on the increase since the Tokyo round of multilateral trade negotiations(September 1973 to April 1979) where they were first discussed. NTB is also called non-tariff measure.

1. Voluntary Export Restraints

Voluntary Export Restraints (VERs) are bilateral arrangements instituted to restrain the rapid growth of exports of specific manufactured goods. The United States and the European Community have, thus, regulated the imports of several products. Other bilateral arrangements have involved restraining the growth of specific exports from Japan and the newly industrializing countries. The VERs are usually highly discriminatory. The Uruguay Round Agreement has sought to abolish VERs.

2. Antidumping Duties
The objective of U.S. antidumping policy is to offset two unfair trading practices by foreign nations 1. export sales in the United States at prices below the average total cost of production; and

2. price discrimination, in which foreign firms sale in the United States at a price less than that charged in the exporters home market. Both practices can inflict economic hardships in U.S. import-competing producers; by reducing the price of the foreign export in the U.S. market, they encourage U.S. consumers to buy a smaller quantity of the domestically produced good. Antidumping investigations are initiated upon a written request by the import-competing industry that include evidence of 1. dumping; 2. material injury, such as lost sales, profits, or jobs; 3. a link between the dumped imports and the alleged injury. Antidumping investigations commonly involve requests that foreign exporters and domestic importers fill out detailed questionnaires. Parties that elect not to compete questionnaires can be put at a disadvantage with respect to case decisions; findings are made on the best information available, which may simply be information supplied by the domestic industry in support of the dumping allegation. If investigators determine that dumping is occurring and is causing material injury to the domestic industry, then the U.S. response is to impose an antidumping duty (tariff) on dumped imports equal to the margin of dumping. The effect of the duty is to offset the extent to which the dumped goods prices fall below average total cost, or below the price at which they are sold in the exporters home market.

3. Countervailing Duties
As consumers, we tend to appreciate the low prices of foreign subsidized steel. But foreign export subsidies are resented by export competing producers, who must charge higher prices because they do not receive such subsidies. From their point of view, the export subsidies give foreign an unfair competitive advantage. As viewed by the World Trade Organization, export subsidies unfair competition. Importing countries can retaliate by levying a countervailing duty. The size of the duty is limited to the amount of foreign export subsidy. Its purpose is to increase the price of the imported goods to its fair market value. Upon receipt of petition by a U.S. industry or firm, the U.S. Department of Commerce conducts a preliminary investigation as to whether or not an export subsidy was given to a foreign supplier. If the preliminary investigation finds a reasonable indication of an export subsidy, U.S. importers must immediately pay a special tariff (equal to the estimated subsidy margin) on all imports of the product in question. The Commerce Department then conducts a final investigation to determine whether an export subsidy was in fact granted, as well as the amount of the subsidy. If it determines there was no export subsidy, the special tariff is rebated to the U.S. International Trade Commission, which determines if the import-competing industry suffered material injury as a result of the subsidy. If both the Commerce Department and International Trade Commission rule in favour of the subsidy petition, a permanent countervailing duty is imposed that equals the size of the subsidy margin calculated by the Commerce Department in its final investigation. Once the foreign nation stops subsidizing exports of that product, the countervailing duty is removed.

4. Administered protection
Administered protection encompasses a wide range of bureaucratic government actions, which have grown in absolute as well as relative importance over the last decade or more. Most recent VERs are in fact regarded as the outgrowth of administered protection actions. Important administrative protection measures are 1. Safeguards 2. Health and product Standards.

5. Social Clauses
In the context of international trade, a social clause essentially refers to a legal provision in a trade agreement aimed at removing the most extreme forms of labour exploitation in exporting countries by allowing importing countries to take trade measures against exporting countries which fail to observe a set of internationally agreed minimum labour standards. The trade measures may include: exclusion from arrangements providing preferential trading status (e.g. US or EU General System of Preferences (GSP) or Most Favoured Nation (MFN) trading status); 2. setting up restrictive quotas or other quantitative trade barriers and/or the raising of tariff levels; 3. Complete restriction on the importation of products originating from the offending country. While the focus is presently on trade measures, social clause provisions have been linked to non-trade arrangements. For instance, the US Overseas Private Investment Corporation (OPIC), a government agency which offers insurance to US companies operating in developing countries, will withdraw its services from projects in countries not taking steps to adopt and implement laws that extend a set of internationally recognized labour standards. It has also been suggested that social clauses should also be added to development aid and loan programmes. At present, while the ILO actively promotes the ratification and supervision of Conventions, it cannot force compliance or impose financial, commercial or other sanctions; rather it relies on persuasion and peer pressure to encourage States to meet their obligations. Nevertheless, despite not having a punitive enforcement mechanism, the ILO has in practice attained an influence that goes beyond legal formality.
1.

The Labour Standards Being Proposed Past discussions concerning the social clause, especially the terminology used, often lacked clarity. Terms such as workers' rights, labour rights, social rights or even social dumping were often not clearly defined. As a result, there was much confusion over the nature of the labour standards which would be covered by a social clause. A clearer understanding of what is to be contained in a social clause and how they will be interpreted and applied is important in allaying fears of abuse by protectionists.

Most proposals for a social clause are based upon the aforementioned seven ILO Conventions. These are listed below: Freedom of association and collective bargaining (Conventions 87 and 98); Abolition of forced labour (Conventions 29 and 105); Prevention of discrimination in employment and equal pay for work of equal value (Conventions 111 and 100); 4. Minimum age for the employment of children (Convention 138) (plus the proposed new convention concerning the most extreme form of child labour which is expected to be adopted in 1998/99). 5. Apart from Convention 138, the above-mentioned Conventions are among the ones with the highest number of ratifications
1. 2. 3.

Bibliography Books 1. International trade and relations, year-2002, page no. 201,202,203 2.

Internet http://actrav.itcilo.org/actrav-english/telearn/global/ilo/guide/hoelim.htm http://en.wikipedia.org/wiki/World_Trade_Organization