COURSE OUTLINE

Book Titled
WTO and Multilateral Trading System
PAST, PRESENT AND FUTURE
By
Mr Lal Das
COURSE OUTLINE
Chaptert#1
THELONG STRIDE:FROM HAVANA TO DOHA
Chaptert#2
MAIN FEATURES OF GATT/WTO
Chaptert#3
IMPLEMENTATION AND IMPLICATION
Chaptert#4
NEW ISSUES IN THE WTO
Chaptert#5
WTO PROCESSES
Chaptert#6
TOWARDS THE FUTURE
ALL ABOVE CHAPTERS ARE INCLUDED IN YOUR COURSE
(TERMINAL EXAM: TWO QUESTIONS FROM EACH CHAPTER)

CHAPTER # 1
Important Questions
Q1: Why there was need to create an
International Trade Organization?
Q2: Discuss objectives and Functions of WTO?
Q3: What are the Institutional Implications of
TRADE Rounds? Discuss?
Q4: Discuss main features of Toyko Round?
Q5: Discuss main features of Uruguey Round?
Q6: Discuss Importance of DOHA Ministerial
conference 2001?



Q7: WTO is widely criticized as A Vehicle
for Developed Countries Interest
Comment?

Q.Discuss Objective and
Functions of WTO?
1. The world Trade Organization (WTO) came
into being in 1995. The WTO is the successor
to GATT, which was established in 1948, after
second world war.

2. WTO was developed through a series of Trade
Negotiations or Round held under GATT. The
first round dealt mainly with Tariff reductions
but later negotiations includes other areas
such as Anti-Dumping and Non Tariff Measures
the Uruguay Round (1996-1994) led to the
creation of WTO.
3. GATT anD WTO have helped to create a
strong and prosperous Trading system
which have contributed to the
unprecedented growth of International
Trade.
Objective and Functions of WTO
OBJECTIVE:
The WTOs over riding objective is to help
trade flow smoothly, freely, fairly and
predictably.
Functions of WTO:
1. Administering Trade Agreements.
2. Acting as a Forum for Trade
Negotiations.

3. Reviewing National Trade Policies of
member countries.
4. Assisting Developing countries in Trade
Policy Issues Through Technical assistance
and Training Programmes.
5. Co- operating with other International
Organizations
6. Settling Trade Disputes between member
countries.
World Trade Organization (WTO)
The Long Stride: from Havana to Doha
Various phases contain almost half century from GATT (General
Agreement on Tariffs & Trade) to WTO
Absorbed some changes & ignored some, But
Basic character & features remained same---became a weakness to
contemporary world economic system

Foundation:
Earlier work started in 1947
Formally founded in 1948 through a conference convened by UNO
International Conference on Trade & Employment (Havana)
under ECOSOC
Plan to establish an International Trade Organization
Areas Covered:
Tariffs
Discipline on Import & Export
Employment
Economic Development
Restrictive Business Practices
Commodity Issues
Charter Signing: A controversy
Signed by all participants but USA refusal to ratify
Uncertainty due to US non-ratification led to dysfunctional aspect
of the organization
Still, a landmark in International Trade
Finally signed on October 30, 1947.




Background Objectives for Organization
1) Extensive devastation in post WII..
Economies damaged
Heavy loss of infrastructure & industries
New World Order: more inclined towards economic
interdependence
Phenomena of Economic Growth
2) Great Depression of 1920s-30s
A world wide economic depression
Europe under tremendous Economic strain
Started in 1929US origin
Sudden devastating collapse of US Stock Market Prices
Fall in Stock Price led to Stock Market Crash (known as
Black Tuesday)


Causes of Great Depression
1) Structural weaknesses;
a) Massive Bank failures
b) Stock market crash
c) Inefficient Monetary Policies
d) British decision to return to the Gold Standard
e) Economic Recession
f) Large-scale loss of confidence in investment & consumption
2) Burden of IWW;
a) loss in world war
b) Western European countries insistence on reparation from
defeated countries
c) Reparation caused economic strain on defeated countries


d) Reparations caused economic strain on the defeated
countries
e) US insistence to repay loans from victorious nations; caused
heavy burden
3) Countries became Inward-looking
a) Self-centered economic policies were followed by all the
countries irrespective of others concern
b) Trade barriers increased
c) Control on direct Import through high tariffs & barriers


Effects of Great Depression
a) Devastating effects in every country irrespective of rich
& poor
a) Personal Income, Tax Revenue, Profits & Prices
dropped
a) International Trade effected
b) 25% unemployment rose in USA
c) Cities dependent on Heavy Industries were hit hard
d) Construction in many countries was halted
e) Automobile sales declined
f) Farming & Rural Areas got suffered
g) Crops Prices fell by 60% approximately





Important Milestones of GATT
Several Rounds of Multilateral Trade Negotiations (MTN):

1) Geneva Round-1947
Signing of GATT
Tariff Reduction as a basic Objective
2) Annecy Round - 1949
The second round took place in 1949 in Annecy, France.
13 countries took part in the round.
The main focus of the talks was more tariff reductions, around
5000 in total.
3) Torquay Round - 1951
The third round occurred in Torquay, England in 1950











Participated by 38 countries
8,700 tariff concessions were made
4) Geneva Round 1955-1956
The fourth round returned to Geneva in 1955 and lasted until
May 1956.
Twenty-six countries took part in the round. $2.5 billion in
tariffs were eliminated or reduced.
5) Dillon Round 1960-1962
The fifth round occurred again in Geneva and lasted from
1960-1962
The talks were named after U.S. Treasury Secretary and former
Under Secretary of State, Douglas Dillon
reduced over $4.9 billion in tariffs
Creation of European Economic Community (EEC).




6) Kennedy Round - 1964-1967
The level of Tariffs went down nearly 10%
Negotiations mainly among developed countries
7) Tokyo Round - 1973-1979
Reduced tariffs and established new regulations
aimed to control the proliferation of non-tariff barriers and
voluntary export restrictions.
Attended by 102 countries, Concessions were made on $190
billion worth.


8) Uruguay Round - 1986-1994
began in 1986, it was the most ambitious round to date
expanded GATT to important new areas such as services,
capital, intellectual property Rights (IPRs), textiles, and
agriculture
Trade Outcomes of MTNs:
Trade Liberalization
Benefits of Tariff reduction visible in developed countries
Trade expansion
Internationalization of Trade


Disadvantages:
Besides achievements, certain short comes;
Tariff Interest disparity in Import & Export products to
developed and the developing countries
Tariff Escalation in the developed countries on several
product chains
Tariff Escalation
A situation where the import duties on components
or raw materials are lowest, and move
progressively higher on semi-finished goods
upwards to the finished goods.
higher tariffs on products that incorporate higher processing




Impact of Tariff escalation in Developing countries
Discourages the export of higher processed products
Hinder the development of higher processing industries in the
developing countries
A hurdle into the upgradation on industrial activities

Significance of Uruguay Round:
The Uruguay Round (1986-94) saw a shift in North-South politics
in the GATT-WTO system
Larger participation of developing countries
during the round different alliances developed, depending on the
issues


organizing alliances by developing countries such as the African
Group (AG) and the Least-Developed Countries Group (LDCs).
Developing Countries participation into Negotiations:

Solid Grounds:
1) various developing countries started joining GATT

2) Upto Kennedy Round, talks were restricted mainly to Tariff
Reduction
No much concern visible of developing countries
3) 1980strade expansion led to higher expectations of developed
countries from the developing countries

Developed Countries Developing Countries

Demand significant Concessions To enhance their
from developing countries in tariff participation in
& non-tariff areas International Trade

To access raw material in South Defending their own
interest in international
trade system


Lower Tariffs on the Mutual Interest Products:
Lower Tariffs for the products of mutual interest of developed countries
were applicable to all
Developing countries also enjoyed the same tariff level as per the
provision of Most-Favoured-Nation (MFN)

Most-Favoured-Nation (MFN)
deriving incidental gains/benefits without participating much/direct
(According to Article I of the GATT-1944)
The principle beneficiaries of concessions were the developed countries
for the products of mutual interest, but;
The developing countries derived incidental gain through the application
of the MFN principle
Even though they did not participate much in the tariff reduction exercise
directly (upto the Tokyo Round)
Granting developing countries a status of Free Riders in the trading
system

Institutional Implications of Tokyo Rounds:1973-1979

Tokyo Round & Uruguay Round have important institutional
implications
Three important features of the Tokyo Round having
institutional significance;
1) Specification of Obligations & disciplines
Expansion of Trade Area covering:
Subsidies
Dumping
Technical barriers to Trade
Customs valuation
Import Licensing
Formulation of more disciplines & obligations
Principles became more specific & precise


2) Specific Sectoral Agreements
Civil Aircraft
Dairy Products
Bovine Meat

Earlier GATT framework for rights & duties was common to
all sectors

3) Establishment of Tokyo Round Codes
Tokyo Round Results were finalized in agreements (Known
as Tokyo Rounds Codes)

Only applicable to the countries which accept them
Uprooted the MFN rule


Division of Countries into various classes:
a. Countries: as signatories to the Code shall have different
rights & obligations than others
b. Countries: as non-signatories shall not get free entry to
the meeting of the committees created
under these Codes (only observer status)

Resulted in fragmentation of GATT structure
Institutional Implications of Uruguay Rounds:1986-1994

More fundamental institutional implications:
1) Institutionalization of Multilateral Trade framework
creation of World Trade Organization (WTO) in 1994
Having the status of inter-governmental body

2) Effective enforcement system of rights & obligations
Pragmatism in trading system
No chance for mal-practicing, avoiding rules or legal
process for international trading
Fix time-frame specification for dispute settlement at
various stages
Creation of Panels & Appellate Body of WTO for dispute
settlement



Automatic approval of findings and evidences of these legal
bodies for dispute settlement

3) Expansion of WTO Coverage:
Covering services & Intellectual Property Rights (IPRs) in
goods
Coverage of new areas in trading system


Characteristics of Uruguay Rounds:
1. Pressure by private corporations on developed countries
governments for the inclusion of Services & IPRs into
negotiations (successful)

2. US Financial services Sector pressurized US government for the
liberalization of financial services (Banking, Loans, MNCs, etc)
in negotiations

3. Pharmaceutical Industries of USA, Japan & EU to their respective
governments for standards of IPRs Protection in negotiations




4. Finally, major developed countries pressurized developing to
follow the same principles

5. Developing Countries reluctance & resistance initially on IPRs

6. US-severing bilateral negotiations & intense pressure with these
countries ultimately led to their surrender

7. But, they lost the confidence in multilateral trade system for the
time-being
Interim Steps to Reform GATT:
Ministerial Meeting of 1982: (Trade Liberalization)
1970s-80s--a commitment of major developed countries for
liberalization of trade, particularly in the area of Agriculture

Introduction into the GATT, of the consideration of Services,
Investment & high technology (as the most important areas of
the economy)

No practical outcome of the meeting but,

A work program initiated for the liberalization




Haberler Report of 1958: (Reforming the GATT)
Report by the Panel of Experts chaired by Gottfried Haberler
(Professor of Economics at Harvard University)

Panels investigation of loopholes:

Agricultural protectionism

Sharp variation in the prices of primary products
The sector of an economy making direct use of natural resources. This
includes agriculture, forestry and fishing, mining, and extraction of oil
and gas. This is contrasted with the secondary sector, producing
manufactures and other processed goods, and the tertiary sector,
producing services. The primary sector is usually most important in less
developed countries, and typically less important in industrial
countries.

Failure of the export trade of underdeveloped countries


Outcomes of the Report:
1) Multiple under-developed countries are now exporting low
priced manufacturers

2) Reduction in revenue duties by industrialized countries to give
access to non-industrial areas to their markets

Revenue:
In business, revenue is income that a company receives from its
normal business activities, usually from the sale of goods and
services to customers.

3) Export of important products like; Tobacco, Sugar, Cotton &
oilseeds from poorer underdeveloped countries to the
developed countries

4) High level of taxation on main primary products as coffee,
tea, tobacco: a hurdle in consumption

5) Protectionism in mining & oil industries: a barrier in
domestic markets further reducing the earning capacity of
primary producers
Report Analysis:
Addition of Part IV to the GATT
Favorable treatment to the developing countries
Leutwiler Report of 1985:
( chaired by Fritz Leutwiler, former chairman of the Swiss
National Bank & the President of the Bank of International
Settlements)
Protectionism as an Agenda in the report

Preferred openness of trade policy to avoid protectionism in each
country

Analysis of costs & benefits of trade policies
WTO-Ministerial Conferences
Four ministerial conferences held;
Singapore Ministerial Conference (1996)
Geneva Ministerial Conference (1998)
Seattle (US) Ministerial Conference (1999)
Doha Ministerial Conference (2001)

(Ministerial Conference)
A highest decision-making body of WTO
Convened at least once in 2 years
Responsible for carrying out the functions of WTO
Comprised on ministers/representatives from developed and
developing countries

Singapore Ministerial Conference (1996)

Major developed countries proposed 5 new subjects:
1) Investment
2) Competition Policy
3) Government Procurement
4) Trade Facilitation
5) Social Clauses (Labour Standards)
Opposition to these clauses by developing countries
Significant expansion of trade activities
Zero-duty on Information Technology goods (a
new development)
Agreed by all developed and developing countries surprisingly


Geneva Ministerial Conference (1998)

A commitment to duty-free transaction of
electronic goods

Seattle (US) Ministerial Conference (1999)
Conference highly attended but collapsed
Criticism on WTO
Insistence of developing countries for the
exploitation by developed countries
Emphasis of developing countries for their
proposal considerations
Demonstrations by NGOs further destabilizing
the Conference atmosphere











Drawbacks of the Conference:
Created differences among major developed & developing
countries
Severe blow to the WTO system
Conference ended without any formal ceremony
Membership effected by major developed countries
More focus on regional organizations & business groups
Disappointment from upcoming Doha Conference
Doha Ministerial Conference (2001)
Produced an agreed work program
Launching new round of MTNs
Comprehensive negotiations held including; agriculture, Services,
Subsidies, anti-dumping, regional trading arrangements, dispute
settlements, Industrial tariffs & IPRs

Criticism on Doha Round:
Known as Doha Development Agenda for developing countries, it
proved to be an unbalanced program
Accommodation only to the major developed countries in the new
areas
Less consideration to the proposals of developing countries
























Increased asymmetry in WTO system
Mostly served the interests of major developed countries
Finally, decision-making process effected the credibility of WTO
_________________________________________________
Important Informal Processes:
Three informal processes playing an important role;
1. Consultative Group 18 (CG-18)
2. The Morges Group on Agriculture
3. 7 plus 7 Consultations
Consultative Group 18 (CG-18)
Formal constitution but informal work
DG of GATT prepared a list of 18 members of the contracting
parties every year in the meeting to form a group of 18
Group continued for a year
Semblance of balance in hierarchical structure of developed &
the developing countries

9 members from major countries of EEC were counted as 1
group, normally dominates the meeting
Meeting held quarterly with an agenda prepared by DG
the then current issues & policies were to be discussed & future
possibilities were highlighted
DG summarize the discussion & issue press release
The Morges (Lake) Group on Agriculture
Organized specially to talk about the agricultural issues in
international trade as no attention was paid to the area in Tokyo
Round
Informal meetings & sessions
No much effective




7 plus 7 Consultations

Comprised on 7 developed & 7 developing countries members
group
Hold regular consultations on important issues
Like CG-18 the EEC was counted as 1 representation
Informal having no record
DG or Chairman of GATT held these consultations
Ad-hoc based

Trends/Characteristics of WTO:
Various ups & downs in the organization
1. Developed Countries--- a driving force:
WTO shaped by the laws & practices of the developed
countries (USA)
Trading Patterns of developed countries became into the
structure of WTO
(i) For Example; USA developed the principle of reciprocity in
tariff concession in its bilateral agreements with other
European countries (1930s-40s)---further extended to other all
countries
Finally became a part of GATT framework leading to
Multilateralism


(ii) Provision of Escape Clause: Bilateral reciprocal agreement
within USA-Mexico
Escape Clause: (Escaping from the obligations of the
agreement in case of injury to the domestic
industry)
Later, the same provision was extended to all other US
agreements
Finally the provision got absorbed into GATT as a safeguard
clause
(iii) Subsidies code, Anti-Dumping Code, Code on Technical
barriers to trade adopted in Tokyo Round & Uruguay Round ---all
are based on the practices of US & EEC



2. A vehicle for developed countries Interests
Developed countries (US, EU) pursuance of their vested
interests & objectives in GATT/WTO system

A. US found its agricultural sector as ignored in international trading
system
Initiated a move (waiver) to might withdraw from GATT if her wishes
are not accommodated
Ultimately, an abnormal decision was taken to grant US a permanent
waiver in agricultural sector in 1955 by GATT members
B. Creation of EEC as custom Union
The EEC was created as a custom union in 1957,
although GATT has specific disciplines for the formation of custom
unions through a legal system
But the members threaten to leave the organization if EEC was
prohibited












C. Textile Industry in clash:
Export capacity of the developing countries in textile sector posed a
threat to the textile industry of developed countries
Created an environment of competition---unfeasible by the developed
countries might be leading to the closure of their industries
exploited GATT for the protection to their textile industry by
establishing specific rules in derogation to GATT

D. Special Trading arrangements in GATT
Special trading arrangements were instituted in leather, steel,
automobile and electronics sectors
The provisions mostly served the interests of developed countries


E. Significance of Service Sectors & IPRs
Early 1980sexpansion of international trade
Introduction of Services & knowledge-based activities into trading
system
Investors getting anxious to seek outside opportunities especially in
developing countries
Eventually, developed countries included these all subjects into trade
negotiations/rounds

F. Trade through electronic media
End of 1990sUSA prompted the members of WTO for a commitment
to allow duty free electronic commerce (eCommerce) in Geneva (1998)
and Doha rounds


3. Hypocrisy
developed countries took lead in forming GATT framework but
never acted upon strictly
In all the trouble situations they quickly give up all the trade
restrictive policies & measures Agriculture Sector
4. Agriculture
Agriculture sector initially ignored by US & EU countries
Their more attention & Concern to industrialization focused
Agriculture no more desirable sector
After a decade USA, felt it necessary to be included in trading
structure
USA initiated a waiver
EU followed the same


5. Textile

Textile industry weak in developed countries
Incomputable to Japan & China
Developed countries bypassed GATT rules and made other
arrangements
Special regimes were created in various forms
Short Term Agreement (STA)
Long Term Agreement (LTA)
Multi-Fibre Agreement (MFA)
insistence of developed countries to bring about structural
changes just to get prevail over developing countries textile
industries

These arrangement of restricting covered cotton, wool, fiber,
further enhanced to jute & silk also
Trade liberalization more moved to trade restriction through
this exploitation

6. Grey Area Measures
Besides the textile industry, some other areas were also trouble-
maker in the field like, jute, leather etc
The major developed industries felt the import of all these
sectors from developing countries as threat to their domestic
industries
They pressurized their governments to restrict inports in these
sectors

Pressurizing developing countries to be Volunteer
Developed countries pressurized developing countries to agree
voluntarily to restrict export to a specific level while threatening
them otherwise,
Imports would be unilaterally restricted
Developing countries reluctantly agreed to this arrangement
described as Voluntary Export Restrains (VER)
Developing countries compelled to make complain to GATT
because of their self-settlement
Such doubtful situation was named as grey-area measures
Later, the same grey area measures were applied to steel industry

7. Politicization of GATT/WTO

politicization of these organizations by developed & even the
developing countries had been very common act for their political
interests
During 1982-83, UK, Argentina fought over Falkland and Malvinas
islands
UK & several other developed countries imposed trade sanctions
against Argentina for the measures for security reasons
The other developed countries just showed their solidarity with
UK who had conflict with Argentina
USVarious sanctions against Pakistan, Afghanistan, Iran etc
Transformation in Trading patterns
Three reasons for this change
1. The Collapse of USSR
I. GATT system helped developed countries to keep eastern bloc out of
its orbit
II. Except Hungary & Czechoslovakia, the USSR and other countries were
prohibited
III. GATT helped the developed countries to more prevail capitalism

2. Developed countries entry into the consolidation of OPEC & rise
in oil prices
1. After oil price raising in 1970s-80s, it effected developed countries
technological industry
2. But they tackled strategically
3. Entered into OPEC consolidation

3. Internal Weaknesses of the developing countries
Political & economic problems of these countries
Asia, Africa, Latin America under a vicious circle led developed
countries to exploit the situation