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UNIT 2 Chapter 3

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World TradeOrganization

Anish Abraham

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Introduction

Liberalization of Business Activities or Trades isessential for the economical growth of the country

Liberalization brings aboutfree trading (imports / exports)

More opportunities for expanding globally

More open to foreign participation and technology

Better Educated Customers/CitizensImproves competitiveness

More effective and dynamic firms

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Introduction

Liberalization of Trade activities has come to existence throughways of

Trade Agreements

Treaties and International Organizations

One such organization which plays a significant role in the globalbusiness environment is

World Trade Organization (WTO)

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GATT - Predecessor of WTO

GATT was born on 1948 with the objective ofliberalizing trade internationally

Reduction of barriers to international tradeThis was an outcome of the recommendationsmade in Bretton Woods Conference (1944)

IMF (1946)

World Bank (1946)

ITO

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GATT - Predecessor of WTO

ITO was not ratified as it was conceived tointerfere in the domestic policy making of

the different countries.

GATT; framed the international trading

system principles, rules and procedures

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GATT Objectives

Expand International Trade

Liberalizing trade and bring about economic

prosperity

Raising standard of living

Ensuring full employment

Full use of the resources of the world

Expansion of production and international trade

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GATT Achievements

Achievements

Continuing Consultation forDisputeSettlement

Trade Liberalization Exceptions: Agriculture & Textile

Average Tariffs on Manufactured products inindustrial countries was brought down from 40% (1947)

to 3 % (after UR, 1994)

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GATT ConferencesYear Place/Name Subjects covered Countries

1947Geneva Tariffs 23

1949Annecy Tariffs 13

1951Torquay Tariffs 38

1956Geneva Tariffs 26

1960-1961Dillon Round Tariffs 26

1964-1967Kennedy Round Tariffs and anti-dumping measures 62

1973-1979Tokyo Round Tariffs, non-tariff measures, frameworkagreements

102

1986-1994Uruguay Round Tariffs, non-tariff measures, rules,services, intellectual property, dispute

settlement, textiles, agriculture, creation ofWTO, etc

123

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Uruguay Round

This was the eighth round of GATT

It was launched in Punta del Este in Uruguay in

September 1986It extended upto 15th April 1994

It was actually scheduled to be concluded by

December 1990 but extended until 1994 due tothe complexities of the issues discussed and theconflicts among the participating countries

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Uruguay Round

Arther Dunkel, then Director General of GATT,presented a draft of what the conference would resultin.

This was popularly known as the Dunkel Draft

Later this was modified and enlarged and became thefinal draft which was approved by the member

countries on 15th December 1993The final draft was signed by them on 15th April 1994

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Uruguay Round

Until UR, only Tariffs and Trade of Goodswere concentrated.

After UR, the scope was broaden to newareas such as

Trade in Services (GATS)

TRIPs

TRIMs

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GATT vs WTO

GATT WTO

It was ad hoc and wasprovisional

Its agreement are permanent

It had contracting parties It has membersIt allowed existing legislationsto continue even if it violates

It does not permit this

Less powerful, disputesettlement system was slowand less efficient and its rulingcould be easily blocked

More powerful, disputesettlement is more faster andmore efficient, very difficult toblock the rulings

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World Trade Organization

Formed in 1 January 1995

The WTO was essentially an extension ofGATT

Only global international organizationDeals with rules of trade between nations

Agreements are negotiated and signed by the tradingnations and ratified by their Parliaments

It was the outcome of the lengthy (1986-1994) Uruguayround of GATT negotiations.

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WTO - Structure

It has 150 members as on 11 January 2007

They account for about 90% of the world trade

India is a member since 1 January 1995The latest member of WTO is Vietnam on 11 January 2007

Around 30 countries are acting as Observer Government

Decisions are made be the entire membership on aconsensus basis

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WTO - Organization Structure

Top - Level Decision Making : Ministerialconference

Next Level : General Council

Trade Policy Review Body

Dispute Settlement Body

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WTO - Objective

To help producers of goods and services,exporters and importers conduct their

businessMain function

To ensure that trade flows as smoothly,

predictably and freely as possible.

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WTO - Functions

The main objective is achieved through the following functions

Ensure that the rules are transparent and predictable

Settle trade related disputes

Administering trade agreements

Acting as a forum for trade negotiations

Reviewing national trade policies

Assisting developing countries in trade policy issues, through technicalassistance and training programmes

Cooperating with other international organizations

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WTO - Principles

Trade Without Discrimination

No Most Favoured Nation (MFN) Treatment - no special deals totrading partners, all members of WTO must be treated the same

No National Special Treatment - locals and foreigners are treatedequally

Freer Trade

Predictability through Binding - promising not to raise tariffsis called binding a tariff and binding leads to greater certainty

for businessesPromoting Fair Competition

Encouraging Development and Economic Reform

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WTO - Arguments For it

Promotes peace

Disputes are handled constructively

Rules make life easier for allFreer trade cuts the costs of living

More choice of products and qualities

Trade raises income

Trade simulates economic growth

Basic principle makes life more efficient

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WTO - Arguments Against it

Dictate policy

For free trade at any cost

Commercial interest take priority over developmentCommercial interest take priority over the environment

Commercial interest take priority over health and safety

Destroys jobs, worsens poverty

Small countries are powerless

Tool for powerful lobbies