World Trade

Organisation (WTO)

 The rationale of international trade is

comparative 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 (GATT) in 1947-48 to
ensure
orderly
and
transparent
international trade.

 The fundamental principles of such an agreement

are
i) Most Favoured Nation (MFN)- treating other
people equallyUnder 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.1However,
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 (b) Unilateral Quota
(c) Bilateral Quota (d) 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 utilising the worlds
resources.
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, antidumping duties, CVD's, Safeguards, and finally there are
few agreements that aim to reduce the Non-Tariff Barriers
that hinder trade between countries.