CUTS Institute for Regulation & Competition

CUTS Institute for Regulation & Competition

Training Programme on Commercial and Economic Diplomacy

22-26 October 2007, Royal Orchid, Jaipur

The International (Multilateral) Trading System

Institution and Actors

A Presentation

By

B. K. Zutshi

October 22, 2007

OUTLINE •Introduction : From GATT to the WTO • Marrakesh Agreement Establishing the World Trade Organization

Institution and ActorsWhat does the animal look like? How is it structured to function? What are these Functions?

What is the GATT/WTO Paradigm? WTO as a Sui Generis Organization. Internal and External Transparency: A Critique of the actual working of the System; What are the basic principles and rules of the system? Relations with other Organizations;

• Developing countries & the Multilateral Trading System • Regional Trade Agreements.

The International (Multilateral) Trading SystemInstitution and Actors

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INTRODUCTION : From GATT to the WTO

•Eight Rounds of Multilateral Trade Negotiations, the Ninth (DOHA) Round Underway ;

• The Genesis of the setting up of the WTO:

Increasing Importance of Services in National Economics and in International Trade;

Shifts in Comparative Advantage;

Explosive Growth in Information Technology;

Increasing Tradability of Services;

Increasing Importance of Intellectual Property Goods in Trade due to Technological Developments;

Fragmentation of the Multilateral Trading System.


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Marrakesh Agreement Establishing the World Trade Organization

•Its Distinguishing Features from GATT

Unlike GATT, WTO an Institution.

Third Leg of the International Economic Order Conceived at Bretton Woods.

Much Larger Coverage by Inclusion of Services and TRIPS.

Single Undertaking- a Halt to the Fragmentation of the International (Multilateral)Trading System.

A common Dispute Settlement and Enforcement Mechanism - With Possibilities for Cross-retaliations, Subject to some Disciplines.

A Forum for Continuous Negotiations.

Trade Policy Review Mechanism (TPRM).


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WTO STRUCTURE

DISPUTE SETTLEMENT BODY

COMMITTEES ON

• Trade and Development

• Balance of Payments

•Budget

•Trade and Environment

TRADE POLICY REVIEW BODY

COUNCIL FOR TRADE IN

GOODS

COUNCIL FOR TRADE-RELATED

ASPECTS OF INTELLECTUAL

PROPERTY RIGHTS

COUNCIL FOR TRADE IN SERVICES

COMMITTEES ON VARIOUS

AGREEMENTS IN GOODS

SECTORAL COMMITTEES AND WORKING PARTIES

ON DOMESTIC REGULATIONS AND GATS

RULES

GENERAL

COUNCIL

Ministerial Conference(Every two years)

All WTO Members my participate in all councils, committees, etc, except Appellate Body, Dispute Settlement Panels, Textiles Monitoring Body, and plurilateral committees.

Marrakesh Agreement Contd.5

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Marrakesh Agreement Contd.

GATT/WTO PARADIGM

Elements of the Paradigm

• A set of Rules for the Conduct of International Trade

relations among Members, applicable across the board to

all of them, with some exceptions, strictly defined.

• Negotiated schedules of market access commitments of

individual Members, exchanged on reciprocal basis.

Some exceptions for developing countries.

• A mechanism for dispute settlement and enforcement.

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WTO - a Sui Generis Organization

• It is :

wholly Member-driven and Member-administered

democratic in character, value of a Member’s vote is the same irrespective of Trade Share;

• It has:

a clearly defined remit or competence which is confined to trade relations among its Members;

a credible dispute resolution system, the only one of its kind in any inter-governmental organization;

• Decision making is by consensus, although voting is possible and provided for;

• Within itself it combines the triple function of governance, i.e. executive, legislative and judicial.

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Marrakesh Agreement: WTO - a Sui Generis Organization Contd.

• WTO Secretariat : Role and Functions:

Headed by a Director General with, four Deputy Directors - General and Divisional Heads, who are mostly professionals;

The Secretariat has an important supporting role in the functioning of the system:

Preparing background papers at the request of members for decision-making purposes;

Keeping records of meetings;

Preparation of annual reports and research based studies.

The Director General has a facilitating role and specific authority for offering his/her good offices in mediation and conciliation in dispute settlement and in appointment of members of dispute settlement panels in case of disagreement between parties.

Training,Technical Assistance and Capacity Building Activities.

Manned by highly competent professionals.

No decision making authority on substantive issues.

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Basic Principles and Rules of the System

Simple and Elegant

• Non-discrimination: MFN and National Treatment.

• Prohibition on quantitative restrictions on imports and exports, (some exceptions).

• Reciprocity - Political Economy of the Multilateral Trading System ( S & D for Developing Countries).

• Market Access - Tariff and non-Tariff bindings.

•Transparency

Publication of Laws & Regulations

Domestic Judicial & Review Systems

Notification obligations to WTO

TPRM

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Basic Principles and Rules of the System (Contd.)

• Trade Measures in Condition of :

Fair Competition:Safeguards;

Unfair Competition (Contingent Protection):

Anti-Dumping,

Subsidies and Countervail.

• Dispute Settlement

Consultation

Adjudication

Retaliation

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Internal Transparency and Participation by Members

A Critique of the actual working of the system

•How far are the actual working procedures and practices transparent and participatory in nature?

• There are two kinds of criticism of the existing procedures and practices:

that small and/or least developed countries’ delegates are not even present, much less participate in meetings that involve important discussion and/or decisions.

Small group meetings or the so-called “green room” process is exclusive, or at least , not inclusive enough.

• The absence of some delegates in meetings could be on account of delegations:

not being present in Geneva;

being small, and therefore, unable to cover WTO meetings adequately, and

not aware of, and much worse still, not invited to attend.

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Internal Transparency and Participation by Members

A Critique of the actual working of the system (Contd.)

• The first two have to be addressed by better manpower resource allocation and capacity building of delegations of such Members;

• Also by ensuring that the daily load of meetings is kept within reasonable limits.

• Complaints of lack of transparency are not new.

• The challenge is how to make the negotiating processes both efficient and inclusive.

•This is essentially a leadership issue.

• Some examples from Uruguay Round of good and indifferent leadership

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Role of Civil Societies / NGOs

External Transparency and Participation by Civil Societies / NGOs

• Article V:2 of the Marrakesh Agreement envisages:

“ appropriate arrangements [being made] for consultation and cooperation with Non-Governmental Organizations concerned with matters related to those of the WTO”

• Under this Mandate Guidelines for Arrangements on Relations with NGOs have been laid down by the General Council.

• Specific Activities undertaken are:

NGO dialogues and briefings at the WTO;

Participation of NGOs in technical seminars organized by the WTO Secretariat in Geneva;

NGO-focused website outreach. B. K. Zutshi

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External Transparency and Participation by Civil Societies / NGOs

Role of Civil Societies / NGOs Contd.

• This is not considered enough by some NGOs;

• They demand participation in the WTO processes;

• Basically three issues are involved in such participation:

Availability of WTO documents;

Access to dispute settlement processes and right to file amicus briefs; and

Participation, through presence as observes, in the deliberations of various WTO bodies.

• Proliferation and variety in NGOs ranging from anti-globalization fringe elements to serious research-based organizations.

• Asymmetry in resources and influence between NGOs from the North and the South: Implications at the Multilateral level.

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Relations with other Organizations

• Article V:1 envisages

“ appropriate arrangements [being made] for effective cooperation with other intergovernmental organizations that have responsibilities related to those of the WTO”.

• Policy Coherence and Coordination is a concern, which is sought to be addressed through cooperative arrangements with other intergovernmental organizations;

•Such Cooperative arrangements have been worked out by the WTO with UNCTAD, The World Bank, The IMF, and other specialized agencies like WIPO, WHO, ITU etc.

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Developing countries & the Multilateral Trading System

• Developing countries efforts in reforming the legal framework of the MTS in pursuit of the twin objectives of

1. adequate freedom for themselves in employing commercial policy instruments to foster their industrial and economic development; and

2. enlargement of access in world markets for manufactured goods of export interest to them under the GATT, and, for both goods and services of export interest to them under the WTO

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Developing countries & the Multilateral Trading System Contd…

• In the GATT legal framework Differential and More Favourable Treatment GATT – Part IV Provisions Non Reciprocity: the Enabling Clause*

i. non-discriminatory and non-reciprocal generalize system of preferences

ii. negotiation of preferential bindings in GATT between the developed and developing countries; and

iii. sub-regional, regional, inter regional and global preferences between the developing countries

Graduation

* The full title of the Decision is ‘Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing countries’-- Decision by the Contracting Parties on 28th November 1997

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Developing countries & the Multilateral Trading System Contd…

• In Marrakesh Agreement establishing the WTO

Provisions Concerning Developing Country Members in Agreements

Recognition of general interest

Fewer Obligations or Differing Rules

Longer time frame for implementation

Technical Assistance

Decision on Measures in favour of Least-Developed Countries

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•Exception to the principles of MFN.

•Permissible, subject to conditions and disciplines

with relaxation for developing countries under

special and differential treatment ( S & D).

•Provision for examination of RIA’s by Members.

•Available both in goods and services trade.

Regional Integration Agreements (RIA’s)

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INTEGRATION MODELS

Free Trade Area/Preferential Trade Area :Trade restrictions among member countriesremoved, but each country retains its tariffstructure against outsiders.

Customs Union: Free Trade Area with common external trade policies includingtariffs.

ASEAN/SADC/NAFTA

SACU

Common Market: A Customs Union thatallows free movement of Capital and Labour

COMESA

Economic Union/Monetary UnionA Customs Union with some degree of harmonization of national economic policies - the ultimate being adoption of a common currency

EU

ASEAN - Association Of South East Asian NationsSADC - South African Development CommunityNAFTA - North America Free Trade AreaSACU - Southern African Customs UnionCOMESA - Common Market For Eastern & Southern AfricaEU - European Union

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• Considerations of national security and foreign policy.• Subset of like-minded countries able to move much further, more quickly in liberalising trade flows than in the larger setting of multilateral trade negotiations.• A way to enhance market power, while taking advantage of the MFN exception.• Lock-in liberalisation or regulatory reform.• Guaranteed access to markets.• These are not mutually exclusive.

Regional Integration:Trade-creating or Trade-diverting?Globalisation and Regional Integration: A Paradox?

Motivation for Regional Integration Agreements

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Documents

CUTS Institute for Regulation & Competition