WTO

A BIT OF HISTORY
The General Agreement on Tariffs and Trade
• In 1944, USA and Britain held a conference (Bretton Woods) that
established:
• International Bank for Reconstruction and Development (World Bank)
International Monetary Fund
• In 1945, the United States attempted to launch idea of an
International Trade Organization (ITO)
• London—twenty-three founding members were present and
signed General Agreement on Tariffs and Trade (GATT)
• In 1948 ITO charter was agreed to at a United Nations Conference
• In 1950 US announced it would not seek US Congressional
ratification of Havana Charter, effectively terminating ITO plan
• Vehicle for post-war trade negotiations became GATT
© Kenneth A. Reinert, Cambridge University Press 2021
WTO Genesis -Why WTO came into existence
• GATT predecessor to WTO
• Marrakesh Agreement created the WTO
• Established WTO as a legal international organization
• Stipulated that “WTO shall provide the common institutional
framework for the conduct of trade relations among its members”
• Defined the functions of WTO
WTO came into existence on 1.1.1995, as a response to need
for more effective regulatory, supervisory and enforcement
environment for world trade & investment than the GATT could
provide.
Mission -WTO aims to increase international trade by
promoting lower trade barriers and providing a
platform for negotiation

GATT only focused on trade in goods, WTO's rules

extended to include; Intellectual Property, Investment,
Services, Telecommunications and Financial services
(banking).
GATT compared to WTO

GATT WPO
• Ad hoc and provisional • Permanent and legal
• Contracting parties • ‘Members
• Trade in goods • Trade in goods & services, Trade
& IRPS
• Dispute based on consensus • Faster, binding & permanent
mechanism
 Why the need for organization like WTO?

Why did it take international negotiations? Why didn’t these countries

reduce their tariffs unilaterally?
• It is easier to lower tariffs as part of a mutual agreement than to do so as a
unilateral policy because:
• It helps mobilize exporters to support freer trade and speak up against
the import-competing industries who oppose imports.
• It can help governments avoid getting caught in destructive trade wars. A
trade war could result if each country has a political interest (due to
political pressure) to protect domestic producers, regardless of what
other countries do
• It reduces the possibility of an adverse terms-of-trade effect from a
unilateral reduction of tariffs.
 DOHA ROUND 2001
• In 2001, a new round of negotiations was started in Doha, Qatar,
but these negotiations have failed to produce an agreement.
Progress has been very uneven, with a noted failure at the 2003
Cancun Ministerial Meeting
• July 2004, October 2005 and July 2008 negotiations made some
progress on contentious agricultural issues
• A “final countdown” to conclude the Round by the end of 2011
was missed
• Significant issues remain in agriculture and in “non-agricultural
market access” (NAMA)
• Most of the remaining forms of protection are in agriculture,
textiles and clothing—industries that are politically active
Table 8.1 GATT/WTO rounds of multilateral trade
negotiations

© Kenneth A. Reinert,
Cambridge University Press 2021
Table 8.2: Administrative Structure of the WTO

© Kenneth A. Reinert,
Cambridge University Press 2021
WHAT WTO DOES NOT REQUIRE
❑Does not prevent member states from
establishing their own trade and non-trade policy
objectives.
❑Does not require them to eliminate all barriers to
import of goods and services.
❑Does not direct national administrative and
procedural system.
❑Does not require member states to have a
uniform set of trade regulations.
PERCEIVED BENEFITS OF THE WTO
1. Keeps the peace no wars over trade disputes
2. Disputes handled constructively
3. System based on rules rather than power – designed to give LDCs a fair
chance
4. Freer trade cuts the cost of living
6. Gives consumers more choice
7. Trade raises incomes
8. Trade stimulates growth, inc. employment
9. Basic principles makes system more economically efficient
10. Shields governments from narrow interests
11. Encourages good government
 WTO system reduce trade restrictions in 3 main
ways
1. Reduction of tariff rates through multilateral negotiations.
2. Binding: a tariff is “bound” by having the imposing country agree not
to raise it in the future.
3. Prevention of non-tariff barriers: quotas, export subsidies changed to
tariffs because the costs of tariff protection are more apparent. Reflects
a longstanding view that price distortions (tariffs) are preferred to
quantity distortions in international markets
Subsidies for agricultural exports are an exception. Exceptions are also
allowed for “market disruptions” caused by a sudden surge in imports.
Successive “rounds” of negotiations to gradually reduce trade barriers
 Non-discrimination PRINCIPLE 2 elements
Most-favored nation (MFN) applying to border measures
– Each member must grant treatment to all other members as favorable
as it extend to any individual member country
• no special deals to trading partners, all members of WTO must
be treated the same
• It means that if a country grants a favour (tariff concession,
favourable rules, formalities etc.) to any other country, the
same favour shall have to be granted to all the member
countries of the WTO (there are few exceptions also to this
rule).
National Treatment (NT) applying to behind-the-border measures
Foreign goods within a country should be treated no less favorably than
domestic good with regard to tax policies and other regulations. Locals
and foreigners are treated equally
Non-Discrimination Principle

© Kenneth A. Reinert, Cambridge University Press 2021

 MOST FAVOURED NATION Exceptions:
Exceptions are granted to allow some flexibility in the
system, to accommodate special situations
• Zero tariffs on imports from a partner country in a free
trade area if free trade agreement is notified to WTO.
• Higher than MFN tariff on a product that has been
exported unfairly, either dumped or subsidized.
• Special favorable treatment for less developed
countries Helps even countries with low bargaining
power (e.g. small and poor countries) to get more
favorable market access.
.
 Preferential Trading Agreements
• Preferential trading agreements are trade agreements
between countries in which they lower tariffs for each
other but not for the rest of the world.
• As noted, such discriminatory trade policies are
generally not allowed: Each country in the WTO
promises that all countries will pay tariffs no higher than
the nation that pays the lowest: (MFN) principle. An
exception to this principle is allowed only if the lowest
tariff rate is set at zero.
 two types of preferential trading agreements in which
tariff rates are set at or near zero:

Free trade area: an agreement that allows free

trade among members, but each member can have
its own trade policy towards non-member countries
Customs union: an agreement that allows free
trade among members and requires a common
external trade policy towards non-member
countries.
 Potential impact of preferential trade agreement

• Preferential trading agreements good for national

welfare or not?
• No, it is possible that national welfare decreases under a
preferential trading agreement.
• How? Rather than gaining tariff revenue from
inexpensive imports from world markets, a country may
import expensive products from member countries but
not gain any tariff revenue.
 Impact of Preferential Trading Agreements
• Preferential trading agreements increase national welfare
when new trade is created, but not when existing trade from
the outside world is diverted to trade with member countries.
• Trade creation -occurs when high cost domestic production is
replaced by low cost imports from other members.
• Trade diversion -occurs when low cost imports from non-
members are diverted to high cost imports from member
nations.
 WTO dispute settlement procedure
• Formal procedure where countries in a trade dispute can bring
their case to a panel of WTO experts to rule upon.
– The panel uses previous agreements by member countries
to decide which ones are breaking their agreements.
– A country that refuses to adhere to the panel’s decision may
be punished by allowing other countries to impose trade
restrictions on its exports.
 Dispute Settlement
• Effectiveness of procedures depends on members’
commitment to it. A country has option of ignoring
outcome of the dispute settlement process
Complaining member has right to impose retaliatory
tariffs on a volume of imports from the other
country determined by the DSB
• Table 8.3 WTO dispute settlement complaints, 1995–
2016

© Kenneth A. Reinert,
Cambridge University Press 2021
 CRITICISM
There has been public skepticism and concern about
how it functions since the beginning. Since Inception
WTO has been a major focus for protests by civil society
groups– Environment, Social & Human Rights issues.
When WTO was set up, the majority of developing
countries were not at the table and were barely
consulted. As a result, the WTO essentially protects
MNCs based in the North and acts as a tool of rich and
powerful countries - US, EU, Japan and Canada.
WTO CRITICISM
✓Although majority of other WTO members are developing
countries from Africa, Asia/Pacific and Latin America, many
of them have little to say in decisions that are taken at WTO
meetings. Don't have enough to offer from an economic
standpoint to have any real power. The influential nations in
the WTO focus on their own commercial interests. They also
claim that the issues of health, safety and environment are
steadfastly ignored.
CRITICISM
✓It is often argued that subsidies are needed to protect small
farmers but, according to the World Bank, more than half of EU
support goes to 1% of producers while in the US 70% of
subsidies go to 10% of producers, mainly agri-businesses. The
effect of these subsidies is to flood global markets with below-
cost commodities, depressing prices and undercutting
producers in poor countries – a practice known as dumping.

✓The AoA is criticized for reducing tariff protections for small

farmers – a key source of income for developing countries –
while allowing rich countries to continue to pay their farmers
massive subsidies which developing countries cannot afford.
✓ SRich countries are able to maintain high import duties and
quotas in certain products, blocking imports from developing
countries (e.g. clothing);
✓the increase in non-tariff barriers such as anti-dumping
measures allowed against developing countries;
✓many developing countries do not have the capacity to follow
the negotiations and participate
✓The TRIPs agreement which limits developing countries from
utilizing some technology that originates from abroad in their
local systems
WTO AGREEMENTS
WTO oversees about 30 different agreements, including:
General Agreement on Tariffs and Trade (GATT 1994)
Agreement on Agriculture AoA
Agreement on the Application of Sanitary and Phytosanitary
Measures(SPS)
Agreement on Technical Barriers to Trade (TBT)
Agreement on Trade-Related Investment Measures
(TRIMs)
Agreement on Rules of Origin
Agreement on Import Licensing Procedures
Agreement on Subsidies and Countervailing Measures
Agreement on Anti-Dumping (Agreement on Article VI)
WTO AGREEMENTS
❑ General Agreement on Tariffs and Trade:
covers trade in goods
❑ General Agreement on Tariffs and
Services: covers trade in services (ex.,
insurance, consulting, legal services, banking).
❑ Agreement on Trade-Related Aspects of
Intellectual Property (TRIPS): covers
international property rights (ex., patents and
copyrights).
WTO AGREEMENT ON AGRICULTURE
Part of Uruguay Round Agreement 1994.
1995 to 2004, for developing countries.
❑ Covers 3 broad areas of policy:

❖ Market access,

❖ Domestic support and

❖ Export subsidies.

❑ Obligation to reduce domestic support or

subsidies if support given is above permissible

level of 10 % of value of its agricultural output.
WTO AGREEMENT ON AGRICULTURE

◼ Non-tariff barriers such as quantitative restrictions on

imports through quotas, import licensing etc., to be
replaced by tariffs or duties on imports to provide the
same level of protection to domestic agriculture and
thereafter, tariff levels are to be progressively reduced

© Kenneth A. Reinert, Cambridge University Press 2012

IMPLICATIONS OF AoA
EXPECTATION: Market access will improve with
lowering of tariffs and dismantling of other import
restrictions .Lower tariffs will mean higher access to
domestic markets for foreign companies.
REALITY: Did not bring about trade liberalisation in
agriculture. No significant reduction in domestic as
well as export subsidies given by the developed
countries to their agriculture. Anticipated increase in
exports of agricultural products from developing
countries did not materialised.
Impact of AoA
◼ Results mixed. Developed countries continue
to provide support for agriculture though the
old methods have changed e.g. environmental
subsidies in EU, support for bio-fuels in US.
Continuation of high domestic support to
agriculture in many developed countries is a
cause for concern Developing countries have
suffered substantially from liberalization as
prices have fallen.
◼ Continual frictions with Africa over support
measures in agriculture
Domestic support in agriculture: The boxes

◼ WTO “boxes” in general: green (permitted),

amber (need to be reduced), red (forbidden).
◼ Agriculture Agreement has no red box, although
domestic support exceeding the reduction
commitment levels in the amber box is
prohibited; and there is a blue box for subsidies
that are tied to programmes that limit
production. Exemptions for developing countries
(“S&D box” or "development box)
DOMESTIC SUPPORT: 3 “BOXES”
Green Box: Fixed payments to producers for
environmental programmes e.g. Research.
Payments must be ‘decoupled’ from production
levels.
Amber Box: Domestic subsidies that governments
have agreed to reduce but not eliminate
Blue Box: Subsidies which can be increased
without limit, so long as payments are linked to
production-limiting programmes.
AMBER BOX
◼ Nearly all domestic support measures considered
to distort production and trade
◼ Measures to support prices, or subsidies directly
related to production quantities.
◼ Subject to limits. Minimal supports for product-
specific and non-product-specific support
allowed, defined as a share of the value of
agricultural production. ( 5% of value of
production for developed countries, 10% for
most developing countries ).
BLUE BOX

◼ “Amber box with conditions” — conditions designed to reduce

distortion. Any support that would normally be in the amber box, is
placed in the blue box if the support also requires farmers to limit
production
◼ At present there are no limits on spending on blue box subsidies.
GREEN BOX
◼ Must not distort trade/ cause minimal
distortion. Must be government-funded and
must not involve price support.
◼ Programmes that are not targeted at particular
products, and include direct income supports
for farmers that are not related to current
production levels or prices.
◼ Include environmental protection and regional
development programmes.
◼ “Green box” subsidies allowed without limits,
must comply with the policy-specific criteria.
DEVELOPMENT BOX
◼ Allows developing countries measures of
assistance, whether direct or indirect, designed to
encourage agricultural and rural development and
that are an integral part of the development
programmes of developing countries.
◼ Include input subsidiesto low-income or resource-
poor producers to encourage diversification from
growing illicit narcotic crops
Trade remedies allowed under WTO
◼ Measures against imports to protect domestic industries
from unfair practices. Strict rules
Remedies allowed:
actions taken against dumping
subsidies and special “countervailing” duties to offset the
subsidies
emergency measures to limit imports temporarily,
designed to “safeguard” domestic industries.

© Kenneth A. Reinert, Cambridge University Press 2012

ANTI-DUMPING

◼ Allowed to act against dumping where there is genuine

(“material”) injury to the competing domestic industry.
◼ Must show that dumping is taking place, calculate the extent of
dumping (how much lower export price is compared with
exporter’s home market price), show that the dumping is
causing injury or threatening to do so.

© Kenneth A. Reinert, Cambridge University Press 2012

Countervailing measures

◼ Withdrawal of the subsidy or the removal of its

adverse effects.
◼ Alternatively, charge extra duty ( “countervailing
duty”) on subsidized imports.
◼ Can only be charged after the importing country has
conducted a detailed investigation. Provides special
treatment for developing and least-developed
members

© Kenneth A. Reinert, Cambridge University Press 2012

SAFEGUARD ACTIONS
◼ May restrict imports temporarily if its domestic
industry is injured or threatened with injury caused by
a surge in imports. Injury has to be serious.
◼ Industries, companies may request safeguard action
◼ Criteria for assessing whether “serious injury” is
being caused or threatened, and the factors which
must be considered

© Kenneth A. Reinert, Cambridge University Press 2012

Trade in Services
General Agreement on Trade in Services
(GATS)—significant outcome of Uruguay Round
❑ Negotiations were difficult due to fact that
trade in services is less tangible than trade in
goods
◼ Defined trade in services as occurring in one of
four modes
❑ Mode 1: Cross-border trade

❑ Mode 2: Movement of consumers

❑ Mode 3: Foreign direct investment or FDI

❑ Mode 4: Movement of natural persons

© Kenneth A. Reinert,
Cambridge University Press 2021
Intellectual Property
◼ Definition: An asset in the form of rights
conferred upon a product of invention or creation
by a country’s legal system
◼ Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS) 1995.
Covers: copyright and related rights (i.e.righ ts of
performers, producers of sound
recordings); trademarks; geographical
indications including appellations of origin; industrial
designs; patents ; the layout-designs of integrated
circuits; and undisclosed information including trade
secrets and test data.
© Kenneth A. Reinert,
Cambridge University Press 2021
TRIPS Agreement: controversies
◼ Citizens and firms in developed countries own most
of the world’s IP
◼ Developing countries currently often have less IP
protection than developed countries
❑ Especially in the case of patents
◼ Raises cost of many goods and services to
developing countries
❑ Represents a transfer from developing country consumers to
developed country producers
◼ Issues have also been raised about the impact of
new pharmaceutical patents on access to medicines

© Kenneth A. Reinert,
Cambridge University Press 2021
DOHA PUBLIC HEALTH DECLARATION

◼ The need for this declaration at the Doha Ministerial stemmed

from the AIDS pandemic and the high cost of ARVs in Africa.
◼ “we recognize the gravity of the public health problems
afflicting many developing and least-developed countries,
especially those resulting from HIV/AIDS, tuberculosis,
malaria and other epidemics” (par 1)
◼ ”
DOHA PUBLIC HEALTH DECLARATION

◼ “ we recognize that IP protection is important for the

development of new medicines. We also recognize its
effects on prices” (par 3)
◼ TRIPS should be interpreted and implemented in a
manner supportive of public health and promote access to
medicines

© Kenneth A. Reinert, Cambridge University Press 2012

Committee on Trade and the Environment

◼ Most developing country members of

WTO have taken a dim view of the work of
CTE
Fear the possibility of further protection
against their exports in the form of “green
protection”
❑ Often view environmental matters having
no place in the WTO

© Kenneth A. Reinert,
Cambridge University Press 2021