An Introduction to the World Trade Organization andIts Legal Implications for Pakistan

NAEEM ULLAH KHAN

naeemkhan1976@hotmail.com

The World Trade Organization (WTO) is the only international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictable and freely as possible. The WTO was established on January 1, 1995, thus it may appears to be a young organization but it is infect an old legal and institutional foundation of the multilateral trading system (MTS). One can say it has a “grey head over green shoulders”, because it inherited much from its predecessor the General Agreement on Tariffs and Trade (GATT).The WTO covers three aspects of international trade namely trade in goods (GATT), trade in services (GATS) and Trade Related Aspects of Intellectual Property Rights (TRIPS).

Part – I Basic FactsThe WTO began life on 1 January 1995. Since 1948, the General Agreement on Tariffs and Trade (GATT) had provided the rules for the system. Its head quarter is based in Geneva, Switzerland and since from its birth it has currently 153 members. Presently Pascal Lemy is the director general of the WTO.1

Objectives and Legal PrinciplesThe preamble set forth the objectives of the WTO Agreement and the principle that should guide its member governments. The preamble recognizes that there is a need to achieve the goal of expending trade and economic growth in a manner that allows for the optimal use of the world resources in accordance with the objective of sustainable development, to protect and preserve the environment.2 The preamble also recognize that the agreements to reduce tariff and other barriers to trade and to eliminate discriminatory treatment.3

Since the WTO Agreements are lengthy and complex because they covering large range of trade-activities they deal with agriculture, textile and clothing, banking, telecommunication, government purchases, industrial standards and products safety, food sanitation regulations, intellectual property rights, services and much more. A number of core principles run throughout all of these documents. 4

a) Trade without Discrimination Naeem Ullah Khan, LLB, LLM, Lecturer University Law College, University of the Punjab, Lahore, Pakisan.1 http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm visited on September, 2008.2 R. Bhala, International Trade Law-Theory and Practice (2001), p 202.3 Id 4 Understand the WTO, 2003, p.9

1

The preamble of the WTO ensures that the member countries promote trade without any discrimination. It comprises on two legal principles i.e. the most-favored-nation (MFN) and national treatment (NT).

o Most-favored-nation means treating other equally. Under the WTO agreement countries cannot normally discriminate between their trading partners. Grant someone a special favor (such as a lower custom duty rate for one of their product) and member country will have to do the same for all other WTO members. This principle is known as most-favor-nation. The relevant provision in the Article-1 of GATT5 provides the concept. “Any advantage, favor, privilege or immunity are granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originated in or destined for the territories of all other contracting parties.” It is important to mention that Article-2 of GATS6

and Article-4 of TRIPS7 Agreements enunciate the principle of most-favor-nation. The principle is, however, not with out exceptions but these have been clearly split out in the WTO Agreements.8 One of the exceptions is permission to set up free trade or regional trade agreements like EU, ASEAN, SAARC and SAFTA etc.

o Nation Treatment means that imported and local produced goods should be treated equally at least after the foreign goods have entered the market. The same principle applies to foreign and domestic services, and to foreign and local trade marks, copyrights and patents. Therefore, charging custom duty on an import is not a violation of national treatment even if locally –produced products are not charged an equivalent tax. This principle is enshrined in Article-3 of GATT, Article-17 of GATS, and Article- 3 of TRIPS Agreements.

b) Promotion of Free TradeLowering the trade barriers is one of the most obvious means of encouraging trade barrier. It is really important to reduce tariff and non-tariff as well as administrative barriers, such as red-tapism and exchange rate policies.Since the GATT‘s creation in 1947-48 there has been eight rounds of trade negotiations. A ninth round, under the Doha Development Agenda (DDA) is now underway. At first these rounds focused on reducing custom duties on imported goods as a result of negotiation by the mid of 1990s industrial countries tariff rates on industrial goods had fallen steadily to less than 4 percent.9 It means that WTO agreement allows countries to

5 General Agreement on Tariffs and Trade, which governing the trade in goods. It came into enforced on January 1st, 1948.6 General Agreement on Trade in Services, the GATS framework agreement contains 29 Articles which are general obligations and include provision relating to MFN, transparency, increasing participation of developing countries, economic integration, recognition, payments, safeguard, government procurement, subsidies, etc. 7 TRIPS Agreement being the most comprehensive multilateral agreement on intellectual property covers intellectual property areas such as copy right and related rights, trade marks including service marks, geographic indications, industrial design, patents including the protection of new varieties o f plants, the layout-designs of integrated circuits and unclosed information.8 I. Haque, An Overview of the WTO and Implications of its membership for Pakistan, WTO and Pakistan an Overview (2005), p 8.9 Supra note 4.

2

introduce changes gradually, through “progressive liberalization”. Developing countries are usually given longer time to fulfill their obligations.

c) Open and Fair CompetitionWTO promotes fair and open competition. One may agree with the statement of an international trade expert that the WTO as the system of rules dedicated to open, fair and undistorted competition. It means that the principles on nondiscrimination i.e. MFN and NT are all designed to secure fair condition of trade, such as agreements on anti-dumping, countervailing duties and safeguard measures etc promote open and fair competition.

d) TransparencyThe multi-trading (WTO) system is a sincere attempt by the government to make the business environment stable, transparent and predictable. The WTO system encourage, predictability and transparency in the trade system because without stability and predictability of international trade cannot really grow inter-alia investment. A country can change its bindings but only after negotiating with its trading partners, which could means compensating them for loss of trade. One of the achievements of the Uruguay Round of multilateral trade talks was to increase amount of trade under binding commitments. In agriculture sectors 100 percent products has now bound tariffs. It means that a substantial a higher degree of market security for traders and investors.10 WTO provides an institutional mechanism in the form of trade policy review body. Which consistently performing surveillance role on the policy of the member states.

e) Encouraging Sustainable DevelopmentThe WTO system contributes to economic reforms and sustainable development by removing barriers to international trade, facilitating open and fair competition. The system provides a special and differential treatment (S & DT) for the economic growth of developing and least developed countries.

Jurisprudence for having the WTO 1. There are several cogent reasons for having such an organization. Most

importantly in the complex world it is immensely helpful for the growth of international commerce have a set of ground rules because a rule-based system helps to avoid chaos and uncertainties. The WTO provides a regulatory framework for trade among nations. The WTO Agreements are binding contracts concluded by sovereign nations. The parties to these binding contracts are almost all the trading nations of the world both small and large. Having a system of rules is advantages to all parties as this make the system transparent and predictable.11

2. WTO is also providing all negotiating forum for the resolution of trade disputes it helps in removal of road blocks, making the flow of trade easier and smoother by providing an opportunity for its members to resolve trade problems and conflicts

10 Supra note 8, p 10.11 See Supra note 8, p 5.

3

through the process of negotiations.12 So in nutshell a rule, base system without resolution of dispute is meaningless. The WTO Dispute Settlement Body – DSB provides a comprehensive mechanism for the resolution of trade disputes among the contracting-states.

Historical Evolution of the WTO 1. The WTO came into being in 1995. One of the youngest but old of the

international organizations, the WTO is the successor to the GATT 1947. After the massive destruction of World War – II for the first time in the history a successful institutional attempt was made to regulate international trade through GATT 1948.13 After the end of Second World War ambitious institution efforts were launched in the economic sphere for avoiding mistakes of the past and coming up with the response to challenges of new era. Ultimately a conference was held at a place namely as Bretton Wood,14 which led to the establishment of what is known as the Bretton Wood Institution i.e. IMF15 and IBRD16. It also intended to establish a third pillar for the regulation of international trade.17

2. An agreement (Havana Charter) was in-fact reached to setup the International Trade Organization (ITO) but ITO was collapsed due to political and economic reasons in 1948. Eventually a parallel and subsidiary initiative was also taken to have an immediate agreement GATT for starting the process of tariff reduction as custom duties had gone up very high during inter-war years. The GATT was thus essentially a provisional agreement, a gap-filler intended to become apart of the ITO once that body would come into existence. Consequently the GATT by default of ITO became the institutional organization for the regulation of international trade at global level, till it was replaced and substituted by the WTO in 1995.18

3. It is pertinent to mention that Pakistan was the founding member of the old GATT, 1948 as well as WTO. And has been playing an active role in it ever since.19

Governing Structure of the WTO20

12 Id, Supra note 3 at p 7.13 Folsm et al, International Business Transaction (1999), p 1914 Bretton Wood is a country side in New Hampshire State of the USA where the conference was held leading to the establishment of IMF and IBRD.15 International Monetary Fund, which provides stability in foreign exchange rates.16 International Bank for Reconstruction and Development, which provides long run loans for economic, constructive and sustainable development to the member countries.17 Supra note 4.18 See GATT, October 30, 1947; also See P. Demaret, The Metamorphosis of the GATT: From the Havana Charter to the World Trade Organization, 34 COLUMN. J. TRANSNAT’L L. 123, 126 (1995). See John. H. Jackson , The WORLD TRADING SYSTEM (1997) pp 36-42 (remaining that in some ways the WTO after many years, has become the missing “leg” of the Bretton Wood : “stool”).19 See Supra note 4.20 http://www.wto.org visited on September, 2008.

4

The governing structure of the WTO follows some of the GATT, 1947 model but the parts from it substantially. At the top there is a Ministerial Conference (MC) which needs not less often than every two years21 and act as a supervisory body. Next there is a General Council (GC) meet at least every month. General Council acts in a dual capacity in a form of Dispute Settlement Body (DSB)22 and Trade Policy Review Body (TPRB)23

respectively. In addition to that the General Council (GC) consists of councils for trade in goods, services and trade related aspects of intellectual property rights24 including committees on trade & development, balance of payments, budget, finance & administration and trade & environment.(See Annexure at page. 9)

The WTO SecretariatArticle IV of the WTO Agreements provides for the establishment of secretariat whose Director-General is selected by Ministerial Conference (MC), Secretariat Personal perform their duties pursuant to regulations issued by the conference. Like the other multilateral organizations, the staff of the secretariat is required to be impartial.25

Currently Pascal Lehmy is the Director-General of the WTO.

Part – II

Legal Implications for Pakistan

The Pakistan employs various trades – remedy laws in form of anti-dumping duties,26

countervailing duties27 and safeguard measures28 ordinances respectively to provide relief from imports for Pakistan. These laws are frequently characterized as “contingent laws / protection” because the import relief is provided only under certain conditions29

table – legislation in Pakistan lists the principal trade laws and summarize their key features. That addresses the issue offsetting the effects of unfair trade actions.

21 J. Jackson et al, Legal Problems of International Economic Relations, (2002) p 221.22 Dispute Settlement Body works as Dispute Resolution Body for settlement of international trade disputes between the countries within statutory time period of fifteen months including the time period of appeal.23 Trade Policy Review Body act as a Trade Policy Review Mechanism (TPRM) of the member countries and including surveillance role.24 See Supra note 13.25 See Supra note 2, at 203.26 Anti-Dumping Duties Ordinance, 200027 Countervailing Duties Ordinance, 200128 Safeguard Measures Ordinance, 200229 Administrated protection and procedural protectionism are two others terms for contingent protection.

5

Table – Legislation in Pakistan

S.No. Subject Laws / Amendments Features/Object1 Dumping Anti-dumping Ordinance,

2000This law provides a framework for investigation and determination of dumping and injury in respect of goods imported into Pakistan.

2 Subsidy Countervailing Duties Ordinance, 2001

The law relating to imposition of relating to imposition of countervailing duties to offset illegal subsidies.

3 Safeguard Safeguard Measures Ordinance, 2002

It provides a framework for investigation and determination of serious injury or threat of injury to domestic industry caused by imported products into Pakistan.

4 Patents Patents Ordinance, 2000 and Patents (Amendment) Ordinance, 2002

To protect process or product and inventions.

5 Trade Marks Trade Marks Ordinance, 2001

Registration and protection of trade marks and certification marks.

6 Copy Rights Copy Right (Amendment) Ordinance, 2000

It includes protection of copy right both literary and artistic works.

7 Geographical Indications

Provision of Trade Marks Ordinance, 2001 but new Law being Drafted

It provides protection to geographical indications in a manner consistence with TRIPS agreement.

8 Industrial Designs

Registered Designs Ordinance, 2000

It protects to cover the ornamental features of products including shapes lines and color etc.

9 Integrated Circuits Design

Registered Of Integrated Circuit Ordinance, 2000

It provides to protect topographical layout design of integrated circuits in field of electronics and computers.

10 Plant Varieties

Plant Breeders Right Law being Drafted

It is in process but object would be to protect the different varieties of plants.

The Escape Clause30

30 C. Coughlin, U.S. Trade-Remedy Laws: Do They Facilitate or Hinder Free Trade? 1991, 3.

6

The escape clause contained in the WTO Agreements especially agreements on anti-dumping, countervailing duties and safe guard measures. The escape clause allows a country to restrict temporary imports barrier when raising imports can be shown to injure a domestic industry seriously of the importing country. In the compliance of the WTO obligations the escape clause has been incorporated in the trade-remedy laws of Pakistan, which permits temporary import barriers when rising imports can be shown to injure a domestic industry seriously.31 The basic rationale behind the escape clause based on two justifications. The first one is “the economic adjustment” and second is “formidable force for import restrictions”.

Current Legal Framework of Trade System in PakistanThe principal objective of trade remedy system is to avert unfair trade practices (dumping and subsidy) or to provide temporary remedies to the importing business concerns in emergency or exception circumstances (safeguard), in order to assist the industry32 of the Pakistan to recover from the injury suffered or the threat of injury. Following are the current legal framework of trade-remedy system in Pakistan.

a) Anti-dumping33 OrdinanceThe legal purpose of anti-dumping legislation is to prevent unfair practices price discrimination in which foreign firms sell in Pakistan at prices lower than they charge in their domestic markets and export sales in Pakistan at prices below the average total cost of production. This law provides a frame work for investigation and determination of dumping and injury in respect of goods imported into Pakistan and imposition of anti-dumping duty to offset dumping. And for matters in thereto or connected therewith.34

b) Countervailing Duties OrdinanceCountervailing duties ordinance, 2001 provides to give effect in Pakistan to the provisions of Article VI35 and XVI36 of the General Agreement of Tariffs and Trade and to the agreement on subsidies and countervailing measures. And also setout a framework for investigation and determination of illegal subsidies and injury in respect of imported goods into Pakistan.37

c) Safeguard Measures Ordinance

31 See Jackson 1990 for a comparison of the legal nuances of U.S law with Article XIX of GATT.32 www.ktc.go.kr/en/forum/down/3%20KingLi_07.6.18.ppt33 Article VI: 1 of GATT states that dumping occurs when a producer-exporter sells its product in a foreign market at less than normal value. In general this practice occurs when the price at which the company exports its product is lower than price its charges in its home country. The difference between the foreign and domestic market price is commonly referred to as the dumping margin. 34 See preamble supra note 1. 35 Article VI relates with Anti-dumping and Countervailing Duties, the term countervailing duty means a special duty levied for the purpose off setting any bounty or subsidy bestowed, directly or indirectly upon the manufacture, production or export of any merchandise.36 Article XVI relates with obligations on subsidies that means any form of income or price support, which operates directly or indirectly to increase exports of any product from, or to reduce imports of any product into its territory.37 Preamble of Countervailing Duties Ordinance, 2001

7

Safeguard Measures Ordinance, 2002 provides to give effect the provisions of article XIX38 of the General Agreement on Tariffs and Trade, 1994 and to the agreement on the safeguard measures to provide for the protection of domestic industries in Pakistan in case of serious injury or threat of serious injury caused by products imported into the territory of Pakistan.39

Safeguard measures apply on the investigated product imported into Pakistan and cause increased quantities absolute or relative to domestic production. And cause irreparable loss to local manufacturers.

d) Patents OrdinanceSince Pakistan as a member of the WTO and signatory to the TRIPS agreement under took to repeal Patents & Designs Act, 1911 and came up with a new patent law in the form of patents ordinance, 2000 which has been further amended through the Patents (Amendment) Ordinance, 200240. The main point of difference between the old and new legislation is that patents are now being granted not just for process but for the product as well. The life time of the patent has been extended to 20 years under the new law.

e) Trade Marks OrdinanceAfter the WTO regime Pakistan has promulgated Trade Mark Ordinance, 2001 along with trade marks rules and repealed the old trade mark law of 1940.41 This law provides greater protection to owners and gives them more control over the activities of competitors as compare to the old law. It is pertinent to mention that trade secretes and other types of unclosed information as well as geographical indications are protected through this ordinance.

f) Copy Right OrdinanceThe copy right ordinance, 200042 has been brought new changes in the old copy right ordinance, 1962. These changes have been made inconformity with the TRIPS agreement. This law protects both literary and artistic works however; the idea or its form must be original creation of author.

g) Industrial Designs OrdinanceIn order to comply with the provisions of the TRIPS Agreements in this regard Pakistan has legislate the Registered Designs Ordinance, 200043 for the protection of the ornamental features of products including shapes, designs, lines and colors. The duration of protection of the industrial designs has been provided for 10 years under this law.

h) Integrated Circuit Ordinance

38 Article XIX allows a country to “escape” from negotiated tariff reductions, if the increased imports can be shown to cause or threaten serious injury to domestic producers of competitive products. 39 See generally preamble Safeguard Measures Ordinance, 200240 M. Ali Wajid, TRIPS Agreements and Challenges for Pakistan, WTO and Pakistan An Overview, p.26.41 Supra note 39, at p.27.42 Id43 Supra note 39, at p.28.

8

For the protection of required under the TRIPS Agreement to topographical layout designs of the integrated circuit having industrial application in the electronic discipline Pakistan has promulgated Integrated Circuit Ordinance, 2000.44 The protection has been granted for 10 years under this law.

Annexure

Governing Structure of the WTO45

Conclusive RemarksThe WTO is a reality; it poses threat of loss and offers opportunities for economic growth and sustainable development. It is a tidal wave that can never be stopped and only the principal instrument that can manage globalization. It would be therefore necessary among other things to develop effective safety nets to minimize threats and optimize opportunities. One may agree with statement that the organization will become more development friendly on the conclusion of the ongoing negotiation on DDA. The WTO regime has created opportunities and more are expected be created in the later years and Pakistan is strictly compliance all the statuary requirements of the WTO Agreements in the legislative forms. It is up to Pakistan to take the maximum advantage of these chances and make trade remedy system friendly for the investors, industrialists and stake holders.

44 Id45 http://www.wto.org visited on September, 2008.

9

Ministerial Conference

General Council

Various Committees

Council for Trade intellectual property rights

Council for Trade in goods

Council for Trade in Services

General Council meets as a trade

policy review

General Council meets as a dispute

settlement body