ITBOP - Impact of WTO Report

8/2/2019 ITBOP - Impact of WTO Report

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COMPARATIVE ANALYSIS OF THE IMPACT OF

THE WORLD TRADE ORGANIZATION ON

DEVELOPING AND DEVELOPED COUNTRIES

Submitted as part of curriculum of

ECON C372

International Trade and Balance of Payments

by

Ashesh Kaushik 2009B3A3466G

Shivi Anand 2009B3A3518G

Nikunj Purohit 2009B3A3526G

Saurabh Suman 2009B3A3558G


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INTRODUCTION

The WTO provides a framework of rules for the conduct of world trade in goods and

services, and the trade-related aspects of intellectual property rights and investment

measures. These rules, which embody the multilateral trading system, will have a

profound impact on international trade and on the world economy well into the

twenty-first century. The WTO also provides a forum for trade negotiations and an

institutional mechanism for the implementation of around 20 agreements and legal

texts.

THE ORIGINS OF THE WTO

The underlying idea and the conceptual origin of the WTO go back to World War II.

The leaders of the allied powers were of the view that one of the main causes of the

war was the failure of the open world trading system in the 1930s. They agreed that

the enduring peace and welfare of nations were inextricably connected with mutual

friendly relations, fairness, equality, and the maximum predictable degree of freedom

in international trade. Soon after the war ended, preparations for creating a new

international economic order commenced. One of the important pillars of this new

order, embodied in the Bretton Woods Institutions, was the establishment of the

International Trade Organization (ITO), along with the International Monetary Fund,

and the International Bank for Reconstruction and Development (The World Bank).

The United Nations Economic and Social Council decided in early 1946 to hold an

international conference to draft the charter of the ITO. The UN Conference on Trade

and Employment was held in Havana, from November 1947 to March 1948. The end


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result of this conference was the Havana Charter, which contained the objectives,

principles, rules, and institutional setup of an International Trade Organization. The

Havana Charter was signed on March 24, 1948 by representatives of 54 countries.

In tandem with the preparations for the ITO charter, 23 members of the preparatory

committee carried out negotiations for the reduction of tariffs, which at that time were

the main obstacle to international trade. Accordingly, they agreed on a General

Agreement on Tariffs and Trade (GATT) that was based on the chapters on trade

policy in the draft charter of the ITO. It was a provisional agreement without an

institutional setup because it was envisaged that it would be taken over by the ITO.

The Havana Charter never entered into force because it was not ratified by the US

Congress. Thus, the GATT remained the only legal framework of rules for the

conduct of world trade for almost half a century. However, the GATT regulated only

trade in goods. It did not cover services or investments.

Over the years, the GATT ensured liberalization of world trade through the

elimination or reduction of tariffs and other barriers to merchandise trade. It was

responsible for the manifold expansion of international trade. The greatest

achievement of the GATT was establishing its role as a rules-based system for the

conduct of trade relations among nations, which averted further 1930s-like economic

depressions.

However, the GATT also had its failings. GATT rules never fully applied to

agriculture, and its basic principles and some of its main rules were rendered largely


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inoperative in the case of textiles and clothing. The GATT also lagged behind new

developments in international trade. Initially, its rules applied to trade in goods only.

Trade in services, which had grown rapidly and had become an important and

dynamic element of international trade, was not subject to GATT rules.

When the Uruguay Round negotiations started in 1986, it was not envisaged that a

new organization would be established to implement the results of the negotiations.

However, as the negotiations developed and growth in two new areas, services and

intellectual property became increasingly visible, the countries taking part in the

Uruguay Round started focusing on the need for establishing a permanent

institutional setup to implement and administer the results of the negotiations. It was

agreed that an umbrella organization was needed to house the outcome of

negotiations in goods, services, and trade-related aspects of intellectual property

rights, and to implement the agreements and legal texts negotiated and accepted as

a single undertaking.

The charter of the World Trade Organization was elaborated during the last several

years of the Uruguay Round negotiations. It was formalized in the Marrakesh

Agreement establishing the World Trade Organization, signed in Marrakesh on April

15, 1994. After necessary ratification, the agreement entered into force on January

1, 1995.


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ECONOMIC PHILOSOPHY OF THE WTO

The WTO and its predecessor, the GATT, which is now subsumed in the WTO and

represents one of its important pillars, are based on the rationale that an open and

liberal trading system, underpinned by mutually agreed and legally binding rules, is a

sure recipe for growth of the world economy. An open and liberal trading system is

the foundation of economic development, ensuring expansion of world trade,

expansion of investment and production, job creation and, consequently, of an

increase in global living standards and greater prosperity.

Realization of these objectives depends on the stability and predictability of the

trading environment, conditions pursued by the WTO through its various built-in

mechanisms. In such an environment, businesses, investors, traders, importers and

exporters can plan their activities on a long-term basis safe in the knowledge that

conditions governing competition and access to markets will not change suddenly.

An open trading system is based on free market philosophy. Government

intervention in trade is considered undesirable. However, economic theory has to

face practical realities. Thus, while the WTO system basically frowns upon

government intervention, it does not totally disallow it. Government intervention is

normally to be avoided but, where considered essential to national economic

interest, it has to be subject to certain agreed disciplines. The WTO rules constrain

the freedom of governments to use specific trade policy instruments.

Whereas liberal and open trade is good for different countries, the realization of this

objective is beset with difficulties. One major problem is the opposition of domestic


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interest groups. The WTO provides a shield for governments to ward off such

interest groups seeking special favours. Governments can maintain that they have

legally binding obligations under WTO rules that make it impossible to accept the

demands of the special interest groups. Another difficulty is the conflicting

perceptions of developed and developing countries in achieving this objective.

Developed nations generally want developing countries to adopt open and liberal

trade policies in a short time frame, while the latter favour a more gradual, measured

approach, which allows time for adjustment.

The WTO is often referred to as an organization for free trade. That is not true. While

the WTO does favour an open and liberal trading system and stands for trade

liberalization, it is not a temple of free trade. Although WTO rules do allow

reasonable protection to both goods and services, the organization does not call for

the abolition of tariffs on imported goods, removal of all restrictions on trade in

services, or the elimination of all subsidies and support to domestic industries and

agriculture. It does, however, call for reduction and discipline in the use of these

measures. But WTO principles and rules do not proclaim free trade as the objective.


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OBJECTIVES AND FUNCTIONS OF THE WTO

Objectives

The objectives of the WTO, as enshrined in the preamble of the Marrakesh

Agreement, are as follows:

raising standards of living, ensuring full employment and a large and steadily

growing volume of real income and effective demand, and expanding the

production of, and trade in, goods and services, while allowing for the optimal

use of the worlds resources in accordance with the objective of sustained

development, seeking both to protect and preserve the environment.

A supplementary objective of the WTO is to ensure that developing countries, and

especially the least developed among them, secure a share in the growth in

international trade commensurate with the needs of their economic development.

These objectives are sought by entering into reciprocal and mutually advantageous

arrangements directed to the substantial reduction of tariffs and other barriers to

trade and to the elimination of discriminatory treatment in international trade

relations.


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Functions

The WTO is the legal and institutional foundation of the multilateral trading system. It

provides the contractual obligations determining how governments frame and

implement trade legislation and regulations. And it is the platform on which trade

relations among countries evolve through collective debate, consultations, and

negotiations.

The three main pillars of the WTO are the GATT and its associated agreements on

trade in goods, the General Agreement on Trade in Services (GATS), and the

Agreement on Trade-Related Intellectual Property Rights (TRIPs). These are

reinforced by subsidiary bodies and agreements, the most important of which are the

Dispute Settlement Rules and Procedures and the Trade Policy Review Mechanism.

The principal functions of the WTO are to:

implement and administer the multilateral and plurilateral trade agreements

that together make up the WTO;

act as a forum for multilateral trade negotiations and a framework for

implementing the results of such negotiations;

seek to resolve trade disputes by administering the Understanding on Rules

and Procedures Governing the Settlement of Disputes;

oversee national trade policies through the Trade Policy Review Mechanism;

and

cooperate with other international institutions involved in global economic

policy making


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BASIC PRINCIPLES OF THE WTO

The basic principles of the WTO are built on those of the GATT. Relatively few and

simple, they are far reaching in importance, and have been the guiding light for the

past 50 years and should continue to illuminate the path of the multilateral trading

system well into the new millennium. These basic principles are discussed below.

A. Non-Discriminatory Most Favoured Nation Treatment

The most important and fundamental principle of the WTO is non-discriminatory

treatment or, to be legally precise, most favoured nation (MFN) treatment. What it

means is simply that any advantage, favour, privilege, or immunity granted by one

WTO member to another has to be granted immediately and unconditionally to all

other members.

In the case of goods, MFN treatment applies to customs duties, other border duties

and charges, rules and regulations relating to imports and exports, methods of

levying customs duties, and international transfers of payments for imports or

exports. MFN treatment also applies to trade in services and intellectual property

rights.

There are, however, some exceptions to the MFN rule. For example, WTO member

countries may grant more favourable treatment to countries with which they have

customs unions, free-trade areas, or economic integration arrangements. Such

favourable treatment need not be extended to all other WTO members. In the case


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of services, member countries may make exceptions for some measures applicable

to particular sectors for a limited period not exceeding 10 years.

B. National Treatment

The principle of national treatment implies that imported goods and services and

foreign service suppliers will be given treatment that is no less favourable than that

given to domestic goods and services and to domestic service suppliers. The

principle is observed by giving either the same treatment or more favourable

treatment to imported goods and services and to foreign service suppliers as that

given to domestic goods and services and to domestic service suppliers.

In addition, whereas national treatment is unqualified in the case of goods, for

services it is applicable to those service sectors and sub-sectors on which a WTO

member has made specific commitments that are recorded in its schedule of

commitments.

The TRIPs Agreement obliges each WTO member to accord the nationals of other

WTO members no less favourable treatment than that it accords to its own nationals

with regard to the protection of intellectual property rights. There is, however, an

exception to national treatment as provided in the Paris, Bern and Rome

Conventions.


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C. Stability and Predictability

The stability and predictability of trading conditions is another basic principle of the

WTO. Stable and predictable conditions of access to markets promote confidence

because investors and traders can plan their investments secure in the knowledge

that market access conditions will not change for the worse. This is achieved through

the binding of tariffs and conditions of market access for services.

Tariffs on different products that are reduced or agreed to in trade negotiations are

bound; that is, a country agrees that it will not levy tariffs at rates higher than those

agreed to. Tariffs on all agricultural products have been bound by each WTO

member, both developed and developing. As for industrial products, developed

countries have bound tariffs on practically all products, while developing countries

have bound them for more than 70 per cent of their products. Bound rates of tariffs

for different products are recorded by each country in its schedule of tariff

concessions and commitments. Every WTO member is required, as a necessary

condition of membership, to have a schedule of tariff concessions and commitments.

A similar devise applies to services. Each WTO member is obliged to have a

schedule of specific commitments on services that lists the service sectors and sub-

sectors for which a country agrees to provide market access and national treatment

in its market. Members are permitted to place any limitations or conditions on market

access and national treatment. The sectors and sub-sectors of services included in a

schedule, and the limitations and conditions on market access and national

treatment are bound; that is, they cannot be changed to make them less


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advantageous. WTO rules do provide the possibility, in exceptional cases, to change

the bindings on goods and services, but this can only be one after negotiations with

affected countries and after compensating them. Under normal circumstances,

bindings cannot be altered adversely.

D. Transparency

WTO rules oblige member countries to ensure transparency in their foreign trade

regimes by requiring them to publish all laws, regulations, measures, and

administrative decisions affecting trade. The publication of laws has to be done in a

manner that allows importers, exporters, consumers and investors to be aware of

them. Transparency is also ensured by requiring member countries to submit

periodic notification to the WTO Secretariat on different aspects of the trade regime.

E. Trade Liberalization

As mentioned earlier, the WTO is not an organization for free trade, since it does

allow protection. However, one of the principles of the WTO is progressive

liberalization of trade in goods and services. This principle is rooted in the belief that

the removal or reduction of trade barriers results in an expansion of international

trade that is to the benefit of all countries. To achieve progressive liberalization, the

WTO provides a forum for trade negotiations and a framework for implementing the

results of such negotiations.


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F. Fair Competition

One of the basic principles of the WTO is fair competition in international trade. The

rules on MFN treatment and national treatment are designed to promote fair

competition. WTO rules also contain disincentives or remedies against unfair

competition, such as dumping or subsidization that causes injury to domestic

industries.

G. Economic development

Last, but not least, is the principle of economic development of developing countries.

There are many provisions in different WTO agreements designed to promote

economic development of developing countries and to encourage economic reforms

both in developing countries and in transition economies.

FORMAL AND INFORMAL RULES OF THE GAME

The WTO provides a rules-based system for the conduct of world trade. It lays down

a binding code of conduct for member countries to formulate and implement their

trade policies. The code of conduct contains the rights and obligations of member

countries. Most of the WTO rules are formal written rules, but like any body of rules,

there are also conventions or informal rules.


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Formal rules

WTO rules for the most part are formal written rules. They encompass all areas of

the WTOs competence and are spread over some 550 pages. They apply to all

merchandise trade, agricultural and industrial products, and services and trade-

related aspects of intellectual property rights.

These rules are designed to ensure the achievement of the objectives of the WTO,

as discussed above, and to codify the rights and obligations of members.

Furthermore, the rules cater for the specific situations of the different areas and

sectors of international trade, and regulate the use or rein in the abuses of different

trade policy instruments.

WTO rules are organized in three sets of multilateral trade agreements, an

understanding, a mechanism, and two plurilateral agreements. The first is the set of

multilateral agreements on trade in goods, of which there are 13. The most important

of these is the GATT 1994, supplemented by six understandings that interpret or

clarify some articles of the GATT. GATT 1994 is legally distinct from GATT 1947.

GATT 1994 consists of GATT 1947, as amended and modified since 1947, but

excluding the Protocol of Provisional Application; Protocols of Tariff Concessions;

Protocols of Accession; and Decisions of the GATT Contracting Parties taken

between 1948 and 1993. The other 12 agreements are:

Agreement on Agriculture

Agreement on Textiles and Clothing


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Agreement on Subsidies and Countervailing Measures

Agreement on Anti-dumping

Agreement on Safeguards

Agreement on Trade-Related Investment Measures

Agreement on Technical Barriers to Trade

Agreement on Sanitary and Phytosanitary Measures

Agreement on Customs Valuation

Agreement on Import-Licensing Procedures

Agreement on Rules of Origin

Agreement on Pre-shipment Inspection

General Agreement on Trade in Services

Agreement on Trade-Related Intellectual Property Rights

Understanding on Rules and Procedures Governing Settlement of Disputes

Trade Policy Review Mechanism

Plurilateral Agreements on Government Procurement and Trade in Civil

Aircraft

It should be clarified that all the agreements listed in the previous paragraph must be

accepted and implemented by WTO member countries, with the exception of the two

plurilateral agreements on Government Procurement and Trade in Civil Aircraft,

whose acceptance is not obligatory. The rights and obligations in these agreements

are applicable only to those countries that accept and are signatories to each of

them.


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Informal rules

As stated earlier, the trend over the past 50 years of the GATT and then the WTO

has been to formalize most of the rules of the game. However, there are still some

unwritten rules that are, nevertheless, equally important.

The most significant of these relate to the reduction and binding of tariffs. Not only

are there no written rules governing the proper level and extent of reduction of import

tariffs but, more importantly, there are no rules on the extent and level of bindings of

tariffs. Article XI of the Agreement Establishing the WTO does provide that a WTO

member must have a schedule of tariff concessions and commitments. However,

neither this article nor any other article of the GATT or the WTO specifies what

percentage of the total number of items, or on what percentage of total import trade,

tariffs should be bound. Since the Uruguay Round negotiations the informal rule is

that tariffs on all agricultural products should be bound. And all WTO members have,

in fact, done just that. As for non-agricultural products, the informal rule for

developed countries is that tariffs on practically all products should be bound. Some

developed states have bound tariffs on all industrial products, while others, including

the United States, Japan, and Canada have not bound tariffs on a few items,

especially crude oil.

The informal rule on binding tariffs on all agricultural products also applies to

developing countries, including the least developed among them. For industrial

products, the informal rule is rather diluted. Some developing countries that have

bound tariffs on all industrial products, while others have bound tariffs on very few.


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There are also some countries that have bound industrial tariffs on just 60 to 70 per

cent of the items.

According to the informal rule tariffs on all industrial products need not be bound and

developing countries may bind tariffs on fewer items than developed countries, this

rule has been superseded by another informal rule relating to countries that accede

to the WTO after its establishment. Acceding countries, whether developed or

developing, are required to bind tariffs on all industrial products.

A somewhat similar situation exists in regard to binding commitments on services.

The formal rule says that all WTO members must make commitments on services,

but does not specify the number of service sectors and sub-sectors, or the level of

commitment. The informal rule requires developed countries to make commitments

on a larger number of sectors and subsectors while developing countries depending

upon their level of development, may make commitments, on a smaller number. The

informal rule for acceding countries, especially developing ones, requires them to

make commitments on a relatively large number of sectors and sub-sectors,

compared to existing developing country members.

The WTO has no written rules on multilateral trade negotiations. In practice, the

basic rules are decided at the beginning of each round of trade negotiations.

However, no attempt has been made to agree on detailed rules for trade

negotiations that evolve as informal rules during each round of multilateral

negotiations. Since the informal rules have an important bearing on the conduct of

negotiations, it is important that developing countries get involved from the beginning


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of a trade negotiation round in framing and agreeing on the rules for that round.

Acting together, they should influence the development of such rules, which would

serve to protect their interests during the negotiations.

There are many references to developing countries in the various WTO agreements.

But there is no definition of a developing country in WTO rules. This is yet another

area of informal rules, but a rather hazy one. Thus far, in practice according to an

informal rule the question of developing country status has been decided on the

basis of self-election. A country that considered itself a developing country would

avail itself of the provisions in WTO agreements relating to developing countries.

Developed states would extend special privileges or preferences to developing

countries, but only to those countries they classified as developing. This informal

arrangement worked reasonably well until recent years. In the case of recent

accessions to the WTO, however, difficulties have arisen. Major developed countries

have been reluctant to agree to developing country status for acceding countries.

They have also tended to refuse to grant acceding developing countries the same

special treatment already enjoyed by existing members at similar stages of economic

development.


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REVIEW OF PREVIOUS LITERATURE

A. In Search of WTO Trade Effects: Preferential Trade Agreements Promote

Trade Strongly, But Unevenly

Theo S. Eicher and Christian Henn

Through this paper, the authors aim to establish a generalised result as to the effects

of WTO accession on countries. An exhaustive literature review on their part led

them to consolidate studies by notable researchers in this field, Rose, Subramanian-

Wei and Tomz-Goldstein-Rivers. They established that previous research showed

that there is no evidence of positive WTO trade effects. The authors combine three

controls namely, multilateral resistance, unobserved bilateral heterogeneity and

individual PTA trade effects (Preferential Trade Agreements) in a large, bilateral

trade setting to examine WTO trade effects.

Since each of the above mentioned studies fails to taken one or more of the above

variables into account, the authors have considered all three omitted variables and

come up with a unique consolidated study on the matter of WTO trade effects. Each

of these factors has a profound influence on previous estimations. They establish

that PTAs create trade strongly but unevenly, i.e., only the regional trading parties

are benefitted in the process as compared to the overall uniform gains and

integration that WTO aims at. The authors have also stressed on the fact that on

disentangling the impacts of overlapping WTO and PTA membership, the WTO

membership increases trade effects just before PTA accession. Also, countries with


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greater incentives to bargain for tariff reductions during WTO accession exhibit

positive and significant WTO trade effects.

The strong suit of this paper is that it unifies all of the noted approaches historically

applied to study WTO trade effects, as depicted in the review of literature, and

delivers a well consolidated result. However, it fails to apply a new approach or

methodology to this topic and simply builds upon previously used techniques.

B. The WTO Trade Effect

Pao-Li Chang and Myoung-Jae Lee

The authors have used a non-parametric approach to analyse the impact of WTO

and GATT accession on a nations trade flows. A total of 234,597 observations on

trade flows among 178 IMF trading entities between 1948 and 1999 were taken.

Previous research in this field was based on the gravity trade model with parametric

estimations and concluded that membership in the WTO/GATT does not affect trade

flows significantly. The following studies only partially reversed this result, again

through the use of the gravity trade model. However the authors of this paper claim

that their contrasting results have been obtained due to their different approach

methodology or the non-parametric approach.

Their approach of dividing the sample countries into dyads or pairs of trading

countries allows them to check for bilateral flows of trade. Their findings state that


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membership in the GATT/WTO by both countries on average raises bilateral trade

volume by 74% to 277% for dyads that both chose to be in the GATT/WTO.

Using the above factors, the authors have divided their analysis into two categories:

the effects on trade between (i) two nations both of which are part of the WTO/GATT

and (ii) two nations where only one is a member. This has special relevance to our

study as we are exploring the comparative impacts on trade flows in developing

countries before they were part of the WTO and after their accession to the WTO

.

In the first case, i.e., the both-in model, as indicated above the, the bilateral trade

volume rises by 74%. Thus there is an overall significant positive impact on trade

flow. The findings for the second case, i.e., the one-in case suggest that the trade

flow could take either direction in this case. The easier trading conditions for the

member country could direct it towards imports from other countries rather than its

corresponding dyad country. Also, the effects of lower trade barriers and tariff

reductions could affect a third non-member trading partner. For instance, oil imports

from Iran would increase if Turkey steps up its production in order to meet the rising

volume of exports. The overall effect however, continues to be positive but at a

smaller increase of 39% as compared to the previous case.

The one issue which is slightly ambiguous in this paper is the criteria for selection of

the two countries which compose a dyad. Apart from this gap, the paper establishes

some fairly sound results.


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C. The Impact of the WTO Regime on Developing Countries

Basudeb Guha-Khasnobis

After getting a general idea of WTOs impact on trade flows between member

nations, we move on to a comparative study of its impacts on developed and

developed nations. Here we review a paper on the impact of WTO on developing

nations due to trade policies and provisions made by developed member nations,

specifically Japan, USA and Europe.

The WTO regulations dictate that each member nation accords MFN (Most Favoured

Nation) status to other member countries. Since this particular directive is tedious

and can be improved upon, the GSP or Generalised System of Preferences has

been examined by the author as an extension of the policies set forth by the WTO.

The study of the impacts of such a preferential agreement has taken a two pronged

approach where (i) effect due to tariff reduction and (ii) effect due to tariff diversion,

is explored. The triad USA, Europe and Japan offer a certain number of

preferential trading agreements to developing nations. As per the equations used by

the author, among the three, USA experienced the maximum trade diversion (-19.4)

and trade reduction (-8.3) effects. This implies that one per cent change in tariffs will

reduce imports to the US by 8.3% and one per cent preference tariff towards an

exporter will increase his trade volume by 19.4%.

The figures analysed by the authors suggest that Japans preference policy is the

most effective as it increases the imports from LDCs (least developed countries) by

65%, however in absolute numbers; it has the least imports from LDCs while the US


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has the most. Other findings in this paper revolve around the 5.3% import weighted

average tariff imposed by the US on LDCs. In case these tariffs had not been

implemented, the projected figures showed that the increase in LDC imports would

have been close to 148%.

Thus through this data analysis, we can observe the huge impact that WTO policies

and their offshoots such as the GSP system, can have on developing nations.

Favourable tariff and trade policies can double trade volumes in certain developing

nations as has been expounded by the author.

D. The Impact of Chinas WTO Accession on Patterns of World Trade

Zhi Wang

Zhi Wang has approached this paper as a significant current topic following Chinas

rise to being one of the most important nations in terms of expanding international

trade. Chinas accession to WTO will significantly impact not just its own economy

but also have some spill-over effects on the developing economies due to increased

competition, lower prices and so on. The author has used a 17 region, 25 sector

computable general equilibrium model. It is based on actual data regarding China

and Taiwans major trading partners in both developed and developing countries

between 1997 and 2010.


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The results of the study indicate that China gains the most from the accession with

its trade volumes doubling in a period of 10 years as compared to an international

average of 83% increase in trade within the same time period. Other developing

nations and newly industrialised countries as well as LDCs stand to gain from

expansion of world trade and improvement of terms of trade. However countries with

endowments similar to Chinas such as the South and Southeast Asian countries

have to face heightened competition in labour-intensive commodities.

Much of the economic theory backing the results in this paper is based on the

Principle of Comparative Advantage which states that a nation exports the

commodity which is intensive in the factor that is present excess and imports the

commodity which is intensive in the scarce factor. Thus the endowments of the

nation determine its trade patterns.

This explains why Chinas accession to WTO would lead to an expansion of the

labour-intensive sectors and increases its net imports in agriculture and capital-

intensive products. The simulations performed by the author indicate that China

increases its land-intensive agriculture imports dramatically leading to its share in the

total world imports more than doubling.

Some limitations of the paper as pointed out by the author himself are that it does

not take into account all the aspects of WTO membership, the uncertainties


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regarding policy and concessions in China since the accession process is not yet

complete and the overly simplified and stylised approach of the paper.

E. The Impact of Chinas Accession to WTO on the Exports of Developing

Countries

S.M. Shafaeddin

Extensive research has been done on the subject of Chinas accession to the WTO.

Here the author aims to dispel any discrepancies that the previous literature may

have on the subject. He has tackled two approaches on the subject (i) application of

the general equilibrium model and (ii) comparison of the industrial and technological

capability of China at the general level. The authors major point of focus is tackling

the exaggeration of the competitive effects of Chinas accession.

The expansion of Chinas exports has a two-fold effect on the rest of the world- the

competitive effect and complementarity effect. Firstly, it provides stiff competition

to the developing countries in South Asia (as reiterated in the previous paper). The

author explains the cause for this as the labour-intensive goods produced by these

countries which compete against the labour-intensive commodities exported by

China (since Chinas competitive advantage arises out of its low wage structure).

The accession to WTO and export oriented policies employed by the Chinese

government provides a stimulus to its exports. However the author claims that the

time taken to procure and divert resources into increased production will be

significant, thus not posing as high a level of competitiveness as usually stated.


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The second complementarity effect is experienced by countries whose capital

products are imported by China for use in production of Chinese finished goods.

Countries included in this category would be the Asian NIEs (newly industrialised

economies) and members of the ASEAN. Since China is moving towards production

of more technology/skill -intensive products, their imports would shift and expand

accordingly proving beneficial to these nations.

The author concludes with a statement that Chinas accession will not improve its

competitive position in these products to seriously threaten other developing

countries. However the paper does not state any concrete methodology used by the

author to reach these conclusions. Results are based on the observations made

using data from 1992-98. No specific before and after case studies have been made

to generate a proper comparative effect of Chinas accession to the WTO.

F. India and China in WTO - Building Complementarities and Competitiveness

in the External Trade Sector

T P Bhat, Atulan Guha and Mahua Paul

The authors have done an exhaustive study of the bilateral trade ties between India

and China. They have studied the competitive as well as complementarity effects

using the statistical methods of complementarity index, trade overlap index and

Grobel-Lloyd index. Extensive surveys of Indias and Chinas imports and exports

before and after Chinas accession to the WTO in 2001 have been carried out. The

data spans from 1996 to 2003.


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The study finds that Chinas joining of the WTO led to a growth in two-way trade of

over 25% per annum. The data over 2000-2004 indicates that Indian exports to

China increased by 26%and imports from China increased by 24%. However though

share of China in Indias global imports is around 1 per cent, the share of India in

Chinas global imports is around 1 per cent. Primary and resource based products

form majority of Indias exports. Chinese exports to India are more diversified.

The revealed comparative advantage index value showed that India has an

advantage in primary products, natural resource based or low technology

manufacturing products. Low wages and high labour productivity are the main

sources of Chinas competitive advantage. Since exports of both countries are

directed towards the US, EU, Japan and ASEAN, China is Indias main competitor.

There has been a clear increase in Chinas exports and imports since its accession.

Thus the authors establish that the post accession effects of China has levelled the

playing field for both nations due to the regulations prescribed by the WTO and

hence a fair study of the trade volumes of both nations can be undertaken.

G. The Effect of WTO and FTAA on Agriculture and Rural Sector in Latin

America

Samuel Morley and Valeria Pineiro

The purpose of the paper as stated by the authors is to analyse the impact of two

situations on the trade patterns of Latin America (i) the elimination of all barriers to

trade including producer subsidies world-wide and(ii) a regional free trade agreement


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among all countries in the western hemisphere called FTA (Free Trade Area of

Americas). The methodology employed here is the national Computable General

Equilibrium (CGE) and micro-simulation models for fifteen Latin American countries.

Changes in the international prices of certain primary commodities (agricultural and

animal husbandry) resulting from the FTAA and WTO full implementation simulations

were observed. The impact on world prices was found to be much higher in case in

WTO as compared to FTAA since it involves complete removal of trade tariffs and

producer subsidies in order to promote free trade. For agriculture as a whole the

increase in prices was found to be 11% and for meat, grain it was 20% in case of

WTO regulations. Both these alternatives resulted in an expansion in output and

employment in general and for agriculture in particular in most Latin American

countries.

A study on welfare performed by the authors found that these measures also

increased the welfare of rural households more than urban in most cases. A micro-

simulation exercise helped them determine the impact of trade liberalisation on

poverty. All of these findings indicated that WTO/FDAA regulations and their impact

on rural or developing economies was highly positive and helped in reducing poverty

and inequality.


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Thus the authors have established through this paper that WTO accession by

countries and the implementation of free trade rules world-wide will have a positive

impact on the agricultural and rural sectors.

H. Liberalising FDI in Services: Russian WTO Accession

Jesper Jensen, Thomas Rutherford and David Tarr

Since there have been no credible studies done in the past on the impacts of

Russian accession to the WTO in 1993, the authors aim to examine these impacts in

the pre and post accession phase. They have developed a 35-sector open economy

comparative static computable general equilibrium model to evaluate the impacts.

The Russian tariff structure as well barriers to FDI inflow have been varied

considerably since the accession.

Using the Hicksian equivalent variation, the authors estimate that the gains to Russia

from WTO accession are 7.2% of Russian consumption in the medium term and as

high as 23.6% in the long run. Out of these gains, only 1.3 percentage points were

attributed to tariff reforms and 5.2 percentage points from FDI liberalisation. The

impact of application of WTO guidelines to the Russian trade scenarios has been

divided into four sections: (i) improved access to international markets for Russian

exporters due to lower trade barriers, (ii) tariff reductions in imports will improve total

factor productivity, (iii) removal of barriers will improve services through the entry of

multinational service providers and (iv) increased investment due to higher rate of

return to capital.


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Thus the results established in this paper are consistent with the economic

geography literature and earlier economics literatures as pointed out by the authors

through their review of literature. The limitation of this paper is that it only deals with

two aspects of the WTO accession, i.e., the tariff reforms and FDI liberalisation. The

other aspects have not been discussed at length. However apart from that limitation,

it gives a fairly clear and well-rounded sector wise comparison between pre and post

Russian accession to WTO.

I. A Comparative Analysis of CIS Countries WTO Accession; Ways to

European Integration

Vugar Bayramov

The author of this paper has undertaken a wholesome study of the effects of WTO

accession on Commonwealth of Independent States (CIS) countries with special

reference to Azerbaijan. He has divided their study into four parts where they

observe the effects of WTO accession on specific sectors in CIS countries, general

pros and cons, implications on Azerbaijan and policy recommendations which will

enhance the positive impacts.

The main points brought out through this study are: WTO membership increases

predictability and openness in international markets due to fixed tariffs, transparency

is enhanced reducing corruption and finally technology transfers will be encouraged.

WTO membership is especially important for a country like Azerbaijan due to its

small domestic market thus requiring greater access to foreign markets. The author


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strongly suggests that Azerbaijan join the WTO despite its various preference trade

agreements with other CIS countries.

Both the positive and negative impacts of Azerbaijans accession to the WTO have

been examined by the author. Whereas it would bring a whole new foreign market

and more foreign investment into the country, the domestic producers might not have

the capacity to face the stiff competition posed by foreign players. Negative impacts

will be most evident on agriculture farmers, small producers and the service sector.

However the paper concludes that the advantages outweigh the disadvantages of

joining the WTO.

The author offers special recommendations to support the primary agricultural sector

within the country since it might not be able to catch up to international standards as

fast as other sectors. Thus, specific protection measures are recommended for this

sector. This paper is a good example of the impact of WTO accession on small

developing countries but fails to base its results on a theoretical model with empirical

data.

J. An Analysis of the EU Positions in WTO: Impact on EU and New Zealand

C. Saunders and J.D. Santiago

WTO accession impacts the sensitive primary sector of a country substantially. In

this paper, the authors examine the effects of WTO on the trade ties between EU


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and Australia-New Zealand with specific reference to the agricultural and animal

husbandry sectors. The agricultural aspects concern mainly three factors: market

access, domestic supports and export subsidies. The case of the Doha negotiations

as taken up by the authors brought out the main problem to be the market access

component with liberal countries asking developed countries with strict policies for

greater market access. The paper analyses the impact of this greater market access

on New Zealand and Australia.

The aspect of animal husbandry has been analysed with the help of the Lincoln

Trade and Environment Model (LTEM). Since the EU is the second largest consumer

of Australian exports, this paper examines the impact of lowering agricultural import

tariffs in the EU in two forms. The economic modelling in this paper considered (i) a

linear tariff cut of 39% and (ii) a tiered formula with cuts ranging from 60% to 35%.

The tiered formula will bring about positive gains to NZ and Australian exports.

Another scenario considered was that where a complete removal of tariffs was

examined. Although highly unlikely, this scenario showed that results doubled in

comparison to the previous cases.

Thus this paper displays how different types of tariff cuts bring about greater market

access in strategic sectors and protect certain others. The one limitation of this

paper is that it examines effects only on the primary sector and not on various others

like the services or manufacturing sectors.


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K. CAP Reform and the WTO: Potential Impacts on EU Agriculture

Julian Binfield, Trevor Donnellan, Kevin Hanrahan, Chad Hart and Patrick Westhoff

In this paper, an analysis of the Common Agricultural Policy (CAP) under the WTO is

presented. This study forms the basis for the analysis of the implications of the WTO

and CAP reform for the agricultural sector in the EU. It specially focuses on the two

aspects that WTO trade reforms aim to tackle market access and trade subsidies.

The WTO classifies subsidies into two categories the amber box subsidies which

have a trade-distorting effect and the blue/green box subsidies which do not have

a trade distorting effect. Thus WTO directives instruct countries to reduce their

amber and blue box expenditure limits in order to promote free unaffected trade. As

a result developed countries try to shift their subsidy expenditures from the amber

and blue boxes to the green box category. This paper shows how the single factor

payment (SFP) system under the CAP reform allows the EU to consider that

expenditures under that measure would fall into green box. The author identifies that

the use of export subsidies by the EU to dispose of surplus production is the bone of

contention in the WTO negotiations.

This is the loophole in the WTO Agreement on Agriculture treaty. The authors also

establish that the reforms are less likely to have an impact on export subsidy levels

or market access. As explained above, export subsidies can be clubbed into a

different, more acceptable category so do not have the intended effects on trade.

Further, the authors explore the EU-US joint initiatives proposal for blended set of


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rules for tariff reductions but the text does not go so far as to draw detailed

conclusions on the level of market access.

L. WTO Impacts on US Rice Producing Households

Roman Keeney and Jayson Beckman

This paper aims to study distributional impacts of proposed agricultural reforms

under the WTO on the welfare of US farm households. The authors have specifically

focussed on rice producing households in the US. The reason for choosing rice as

the main commodity is that rice constitutes a staple diet in developing countries and

enjoys heavy protection and support in developed nations. A modified version of the

standard GTAP (Global Trade Analysis Project) CGE has been used in order to

focus on the agricultural features. Assumptions of constant returns to scale and

perfect competition are retained.

The authors stress on the fact that WTO distributional impacts on far household

incomes in poor countries are wrongly given more importance than to those in

wealthy countries. The results obtained from the study state that the WTO

agricultural reforms push for more market access from other countries benefitting the

rice producers in the US and this effect outweighs the income loss sustained from

subsidy removal. This also explains why the US would like to control the subsidy

cuts to their domestic programs. The losses sustained from complete removal of

subsidy would not be recoverable from fully opening export markets as per the

findings of the micro-simulation conducted.


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The significance of conducting this study in a developed country scenario lies in the

fact that farming households in these countries have the ability to organise with

producers with similar interests and influence the policy process. This could

significantly impact the implementation of trade reforms in these countries.

The limitation of this paper lies in the fact that it focuses on rice producing

households which are the most heavily protected (in terms of subsidies given) and

hence display extreme distributional impacts. Also, the base year taken for this study

is 2001 which stands out as the year with the highest output subsidies for rice in the

US. This has a magnifying effect on the quantitative results.

M. Barriers to Agricultural Exports from Developing Countries: The Role of

Sanitary and Phytosanitary Requirements

Spencer Henson and Rupert Loader

The sanitary and phytosanitary measures under the SPS agreement of WTO

constitute an essential factor affecting trade of agricultural exports between nations.

The technical and social impacts of this agreement pose indirect trade barriers to

many developing countries. This paper seeks to highlight the issues faced by both

developed and developing countries due to the SPS requirements as stated by the

WTO.


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Through extensive surveys conducted in countries with varying income groups, the

authors have identified that the implementation of SPS measures in large developing

countries like India and Brazil, is due to the fact that staff lacks technical expertise in

SPS issues limiting their participation in the Agreement. Other administrative issues

related to this include non-attendance at international meetings, absence of single

reporting point and enquiry point for amended SPS regulations/standards. The

authors also establish that developing countries are in general less able to exploit

the procedures of the SPS Agreement to their advantage as compared to the

developed countries.

However the main issue which presented itself through the survey conducted by the

authors was that developed countries take insufficient account of the needs of

developing countries while setting SPS requirements. Even the WTO website

recognises that developed countries sometimes use SPS requirements to protect

domestic produce and encourage exports while presenting a trade barrier to imports

from developing countries which might not be able to comply with the harsh SPS

standards. The length of time allotted between notification and implementation of

SPS requirements, as well as the technical assistance offered to developing

countries were identified as additional problem areas.

The authors have provided a three-fold solution to the above mentioned issues:

WTO should ensure more effective participation by developing countries, developed

countries should be more considerate to the needs and abilities of developing

nations and finally, developing countries should implement institutional structures


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and procedures that help them integrate better into the WTO SPS Agreement

system.

N. Distributional Effects of WTO Agricultural Reforms in Rich and Poor

Countries

Thomas Hertel, Roman Keeney, Maros Ivanic and Alan Winters

The authors of this paper aim to highlight the comparative distributional effect of

trade reforms, particularly agricultural trade reforms, on rich and poor countries.

They seek to dispel the belief that trade reforms have a positive impact on poor

farmers and not so significant an impact on rich farmers. They have considered the

US as the rich country and fifteen other developing countries. The methodology used

for analysis is a modified version of the GTAP CGE model of the global economy.

These modifications are made to enhance the analysis of agricultural reforms and

simulation of distributional impacts.

The use of household survey data shows the impact of trade reforms by wealth

decile (level of income) and commodity specialisation. The authors found that in the

medium run, wealthy farmers are the main beneficiaries of protectionist trade

policies. These benefits are mainly concentrated in a few products that receive very

high levels of support. In the US, these products are found to be rice, cotton, sugar

and dairy.


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In the poor countries, it was found that rich country agriculture reforms benefit low-

income farm households due to increased market access. The impact on non-farm

population is mixed however, as those dependent on remittances from abroad would

stand to lose while unskilled labour is benefitted due to increased demand. The

impact on poverty depends on the proportion of these groups in the population.

The authors conclude with the statement that global trade liberalisation is the most

favourable path as it helps tackle poverty across the developing nations.

O. Do WTO members Have More Liberal Trade Policy?

Andrew K. Rose

The author is of the strong opinion that WTO membership does not significantly

affect the trade policies of any country. He has used two methods of comparative

analysis to prove his hypothesis (i) comparison between trade policies of WTO

member and non-members (ii) comparison of trade policies for countries before and

after WTO accession. The author has considered 60 quantitative measures of trade

policy to reach the conclusion that membership in the WTO is not significantly

correlated with liberalisation in trade policies.

The measures of trade policy have been divided into seven groups: openness, trade

flows, tariffs, non-tariff barriers, informal/qualitative measures, composite indices and

measures based on price outcomes. The author has employed regression analysis


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using OLS estimates and determined that there is no obvious connection between

WTO membership and trade policy. Results are perversely signed at certain points

as well, i.e., members are less open than non-members, with higher tariffs.

The second aspect of the study further confirms a loose relationship between WTO

membership and trade policy on considering data from 1950 to 1998 of pre and post

accession of countries to WTO. Liberalisation either occurs before accession or after

it with no clear link to the accession process itself. The findings indicate that a typical

accession country has an openness ratio of 73.1% five years before joining and a

ratio of only 70.4% five years after accession. Similarly tariffs rise from 12.5% to

13.1% on imports.

The reason for this as identified by the author is that countries were largely allowed

to follow their own trade policies even after joining the GATT/WTO which may not

necessarily adhere to the spirit of the agreement. Also members were permitted to

extend MFN status to non-members giving no real weight to the actual members of

the organisation. The only opposition to the authors findings is provided by the

Heritage Foundations index which states that members of the system enjoy more

economic freedom.

As is evident from the reviewed papers, there seem to be contrasting views on the

effects of WTO accession on countries. Some studies show positive effects while

other display negative results as a consequence of this action. We have discovered


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that there is no compact comparative study between the effects of WTO accession

on developed and developing countries. The methods of evaluating data in the

reviewed papers are mostly centred on the GTAP standard computable general

equilibrium (CGE). This also generates the requirement to use an alternate

methodology to analyse the comparative effects of joining the WTO and

implementing its policies. Further it would be useful to have a clear and concise pre

and post WTO accession analysis for developed and developing countries. A precise

evaluation of its effects on income, GDP, employment and inequality in these nations

would also be beneficial.


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DATA AND ECONOMETRIC ANALYSIS

The analysis covers the data for the period 1985-2006, i.e. eleven years before and

eleven years after the WTO that has been taken from World Bank, IMF and WTO

websites. We have taken 1995 as the segregating point of the WTO, as in this year

the implementation of the WTO was started.

The model specifications are given as:

TRG = 0 + 1IND + 2AGR + 3SERV + 4WIN + 5GDP

where

TRG = Trade volume (exports + imports) as percentage of GDP

IND = Value added by industry in GDP in percentage.

AGR = Value added by agriculture in GDP in percentage.

SERV = Value added by service sector in GDP in percentage.

WIN = World Income (US $ Billions).

GDP = Gross Domestic Product of countries (US $ Million).

NOTE: This is a general model for each country, i.e. the same model will be applied

for all countries to the relevant data-sets of Developed and Developing economies

before and after the WTO.

The econometric estimates have been obtained through Ordinary Least Square

estimates model, where trade bulk is a function of economic variables like the ratio of

agriculture, service and industrial sector in GDP, global GDP etc. The agricultural

and industrial sectors are the major contributors of trade bulk for South Asian

countries as agriculture mainly contributes to exports and industry in the form of


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import of raw material mainly contribute to imports. Thus we have included these

variables in our model along with GDP of the nations and global GDP. We have

regressed the trade bulk of each country with these variables for the periods before

and after the WTO to see the difference in impact of these variables on trade bulk.

VALUES FOR DEVELOPING COUNTRIES

Before WTO

Country Industry Agriculture Services World Income GDP

India 0.6255 -9.255 0.047 0.0055 0.0044

China* -0.17 2.2499 1.18 -0.00156 -0.000825

Brazil 0.03966 0.501 -0.109 0.0091 -0.00142

Russia -2.198 2.55 5.97 0.08738 -0.02432

Thailand -4.41 0.038 9.29 -0.00462 0.00939

*China joined WTO in 2001 (all others joined WTO in 1995)

After WTO

Country Industry Agriculture Services World Income GDP

India 6.890 0.2328 1.149 0.00394 0.000269

China* 1.488 0.538 0.755 -0.103 0.0037

Brazil 1.171 -6.54 -3.14 -0.0083 0.00187

Russia 3.87 -3.88 0.5147 -0.05289 0.0064

Thailand 5.363 -1.157 21.455 -0.0681 0.0175

*China joined WTO in 2001 (all others joined WTO in 1995)


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For India only two explanatory variables, i.e. ratio of industrial and service sector in

GDP have statistically significant values for the data set before the WTO. For the

data-set after the WTO, the explanatory variables which have significant values are

the ratio of industrial sector, ratio of service sector in GDP and ratio of agriculture

sector in GDP. The role of industrial sector has been increased after the WTO. It is

important to note that agriculture sector is negatively affecting the international trade

of India. India registered a sharp growth in merchandise and service sector of 10.3%

and 9.7% respectively after joining WTO.

China joined WTO in 2001. For china increase in volume of trade can be explained

by increase in industry variable and world income after joining WTO. The accession

of china to WTO has led to an expansion of the labour-intensive sectors and

increased its net imports in agriculture and capital-intensive products. As China is

worlds largest economy, its WTO joining has a complementary effect on other

developing countries whose capital products are imported by China for use in

production of Chinese finished goods.

Rise in trade volume of Brazil can be explained by industry variable and increase in

global GDP after joining WTO. Brazil has experienced a strong growth of 7.5% in its

industrial sector. It has emerged as a major economy in Latin American countries.


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For Russia increase in trade volume can be accounted by mainly two factors change

in industry variable and change in GDP of all the countries. After joining WTO, both

industry trade and GDP of all the countries have increased.

Thailands increase in trade volume can be explained by three variables industry,

services and GDP of all countries. The development of merchandise industry in

Thailand was built on foreign capital, foreign technology and foreign product designs;

final products, moreover, relied significantly on foreign markets.

We can say that developing countries have experienced the following benefits by

joining WTO

(i) Improved access to international markets for exporters due to lower trade

barriers,

(ii) Tariff reductions in imports will improve total factor productivity,

(iii) Improved services through the entry of multinational service providers

(iv) Increased investment due to higher rate of return to capital.


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VALUES FOR DEVELOPED COUNTRIES

Before WTO

Country Industry Agriculture Services World

Income

GDP

Australia -7.74 -8.87 -5.10 -0.043 0.0056

Germany -2.544 -3.88 -4.008 0.00468 -2.03e-05

UK 9.73 -2.04 15.21 -0.0188 0.003855

USA 3.595 -4.023 3.102 0.00045 0.000142

Japan 4.03 -9.04 1.75 -0.00018 0.00093

After WTO

Country Industry Agriculture Service World

Income

GDP

Australia -1.66057 0.5652 0.887 0.00414 -0.0008

Germany -6.47 2.57 -8.83 -0.00581 0.00285

UK -7.87 -5.272 -5.86 0.01011 -0.00128

USA 4.41 -2.999 3.55 0.0047222 -0.000401

Japan 17.96 -11.86 16.65 -0.00222 0.00005


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In case of Australia, the impact of agriculture sector and service sector has become

positive. They serve as major variables that are responsible for increase in volume of

trade.

For Germany and UK there is no variable that accounts for increases in trade after

joining WTO. However there is an increase in employment in these countries but the

volume of trade has remained the same.

For USA only two explanatory variables, i.e. ratio of industrial and service sector in

GDP have statistically significant values for the data set before the WTO and after

WTO. The contribution of industrial sector in trade has increased after WTO while

the contribution of service sector in trade remained the same.

For Japan, the ratio of industrial and service sector in GDP has positive value. There

has been a considerable growth of these sectors after Japan joined WTO. Japans

automobile industry emerged as the biggest beneficiary as joining WTO opened the

market in developing countries.

So we can say that developed countries also gained from joining WTO as it provided

entry of high-technology products into emerging markets of developed countries but

their agricultural products have to suffer due to price disadvantage in comparison

with developing countries. So government had to provide subsidies to make them

more competitive.


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UNEMPLOYMENT RATE

While looking at it from a short-term point of view, the entry into the WTO will exert

an impact on the traditional trades in developing countries by breaking up the original

employment pattern thus increasing unemployment rate.

If judging the problem from a long-term point of view, the entry of the WTO will exert

a positive influence on the increase of job opportunities due to the growth of trade

and the adjustment and update of industry structure. The labour-intensive, tertiary

industries and small enterprises will get further developed, thereby increasing

elasticity for employment.

0

2

4

6

8

10

12

14

year 19911992199319941995 199619971998199920002001200220032004

brazil

india

china

russia

thailand


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THE DARK SIDE OF WTO

Establishment of the WTO was controversial all over the world as it placed the

importance of international commerce and industry interests before all other values,

including consumer safeguards, environmental and labour protections, food safety,

and human rights.

In 1993 US government regulated Environmental Protection Agency

(EPA) rule on gasoline contaminants that cause health-threatening air

emissions. Venezuelan government approached WTO with a claim that the

U.S. foreign standard pertaining to so-called reformulated gasoline put

Venezuelan domestic refiners at an unfair disadvantage by requiring that their

product meet the average cleanliness of U.S. domestically refined

reformulated gasoline. The WTO's very first ruling in early 1996 ordered the

U.S. to eliminate its Clean Air Act regulation on gasoline cleanliness.

The second case came when the WTO ruled against U.S. Endangered

Species Act rules that protected sea turtles from getting killed in shrimpers

nets. In this situation the U.S. complied with the WTO, and replaced the

requirement that all countries seeking to sell shrimp in the U.S. had to ensure

that their shrimpers used turtle-safe devices.

Another area, amongst many, that is a cause for tension, is the TRIPS agreement

that defines how products can be protected from piracy. This agreement increased

corporate control that harmed millions of lives in underdeveloped countries. A major

criticism then has been that in its current form, intellectual property rights regimes


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like TRIPS serve to stifle competition and protect ones investments and profits from

it in that way. For poor nations it makes developing their own industries

independently more costly, if at all possible.

Liberalization often enables the knowledge of the poor to be converted into the

property of global corporations. Resentment occurs when the poor are then made to

pay for seeds and medicines that they themselves have evolved or created the basis

for, without receiving royalties for the part they played in development.

Out of 26,088 applications for patents in Africa in 2000 and 2001, only 31

were from residents of Africa.

70 patents have been granted to FW companies on the products of the Neem

tree of India, which has always been used locally for treatment of fever, snake

bites, leprosy and as a natural insecticide and disinfectant.

In 1998, a US company (Rice Tec) was awarded a patent on the basmati

variety of rice, grown only in India and Pakistan.

Countries such as, India, Argentina, The Dominican Republic, Brazil, Vietnam

and Thailand, have all been threatened under the Special 301 provisions of US

trade law. By contrast the US seems prepared to override patents at home in the

case of patented antibiotics to treat anthrax.


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INCOME INEQUALITY

GINI Coefficient for Developed Countries

Country Before WTO After WTO

Japan 24.9 38.1

Australia 35.2 30.5

UK 32.5 34

USA 41.4 45

Germany 28.2 27.1

The above data shows that there has been an increase in inequality for countries

after joining WTO. This can be explained by Stopler-Samuelson theorem. According

to this theorem inequality is most likely to increase in developed countries as a

consequence of trade with developing countries, because the former are relatively

well-endowed with skilled labor. Only Australia shows a decrease in inequality after

joining WTO.

Along the same lines, we would expect to see declining inequalities in developing

countries.


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GINI Coefficient for Developing Countries

Country Before WTO After WTO

India 30.8 36.8

China 40 47

Thailand 47.9 42

Russia 39.9 42.3

Brazil 57.4 58.6

But the data shows that there has been an increase in inequality for countries after

joining WTO. This can be explained with the help of technological change. In this

case technological catch-up causes production of the least skill-intensive developed

country goods to migrate to developing countries where they become the most skill-

intensive goods. Thus, the demand for skills and hence wage inequality rises in both

the regions. The changes in sector of industry from agriculture to non-agricultural

play a very effective role in determining the income distribution in developing

countries.


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CONCLUSION

The new WTO continues the principles of the GATT and expands them to cover not

only trade in goods, but also services, trade-related investment, and aspects of

intellectual property. It provides an effective forum in which members can negotiate

mutually beneficial liberalization and resolve any subsequent disputes. The main

principles of the WTO boil down to the following:

Non-discrimination, Reciprocity, Transparency, Special and Differential Treatment

REALITY DIFFERENT FROM THE PRINCIPLES

The WTO is an unfair system with flawed views and actions. Yet in this era of

globalization it is a necessary organization. What must happen is a change in the

way agreements are made, and there must be less attention to corporate agendas,

and more attention to national and local interest. Regardless of their intentions, the

WTO is harming millions across the globe. Until something changes, the gap

between rich and poor will likely continue to grow, and the progress of poorer nations

will be significantly slowed. Power politics has meant that the WTO has received

criticized by various groups and third world countries for numerous things, including:

Being very opaque and not allowing enough public participation. Some

national laws and decisions for safety and protection of peoples health,

environment and national economies have been deemed as barriers to free

trade. In terms of the environment the WTO has stood in the way of many

environmental protections throughout the world. In the United States there


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have been two heavily scrutinized cases pertaining to environmental

protection

Instead of respecting the reasons why there has been special and differential

treatment for developing countries, rich countries instead want to push poor

countries to reciprocate equally, in what would therefore actually be an

unequal result (as it would maintain the unequal terms of trade.) Poor

countries can also be threatened with losing foreign aid, debt relief, or trade

opportunities if they do not sign to certain agreements. Citizen input is

consistently ignored, whereas corporate input often becomes law.

The WTO and its defenders argue that it is democratic because all countries

officially have one vote and decisions are usually made by what they call

"consensus." In practice, however, votes are almost never taken. Smaller and

poorer countries cannot afford to maintain the representatives and trade

lawyers necessary to make their voices heard on policy issues at the WTO

headquarters in Geneva. WTO dispute-resolution processes, too, are slanted

against such countries, which don't have the resources to defend themselves

against complaints by rich countries. Often just the threat of a complaint

forces them to settle a dispute in favour of transnational enterprises and

against the interests of the majority of their citizens.

TRIPS aims to prevent imitation of products (which is ironic, given that this

would allow further competition and better prices for drugs and other products,

which is something that transnational corporations have often sung as being

the benefits of free trade and corporate-led capitalism with minimal

restrictions) .TRIPS, WTO and general international trade related agreements


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do not take public health needs into account. Instead, commercial interests

are promoted.

The Multilateral Agreement on Investment (MAI) was one such example of a

trade and investment related treaty which would emphasize the ability for

corporations to be allowed more freedom and less constraints. Transnational

corporations (TNCs) are able to exert enormous influence in no less a

powerful body as the World Trade Organization (WTO). These TNCs are

closely linked to the WTO decision-makers themselves.

The notion of the World Trade Organization seems optimistic. They promote free

trade, and according to their own studies help alleviate poverty around the globe.

Unfortunately there is a strong force of people that oppose the WTO for a number of

justified reasons. Overall we believe that the organization is necessary, but that

some of their practices must change. Too often human rights, labour rights,

environmental protection, and national sovereignty give way to corporate ambition.


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REFERENCES

WTO Working Papers -

http://www.wto.org/english/res_e/reser_e/wpaps_e.htm

o JEL Classification Numbers F13, F15

o JEL Classification: F13; F14; C14; C21; C23

www.cgdev.org

Journal of Policy Modeling: 25 (2003) 141

UNCTAD Working Paper: No. 160

Planning Commission, Govt of India: http://planningcommission.nic.in/reports

http://www.ifpri.org/category/publication-type/discussion-papers

Review of Development Economics, 11(3), 482506, 2007

The Agricultural Economics Society's 81st Annual Conference, University of

Reading;

http://www.reading.ac.uk/aesconf/AES%20Conference%202007%20Section1/

Programme.htm

American Agricultural Economics Association Annual Meeting, Denver;

http://www.aaea.org/meetings

World Development Vol. 29, No. 1, pp. 85-102, 2001

GTAP Working Papers:

http://ae761-s.agecon.purdue.edu/resources/working_papers.asp

Journal of International Economics 63 (2004) 209 235

The Impact of the WTO and FTA on Agriculture and the Japanese Farmers

Movement. Nouminren, May 2005


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Dean Baker & Mark Weisbrot. Will New Trade Gains Make Us Rich? An

Assessment of the Prospective Gains from New Trade Agreements.

Washington, DC: Center for Economic and Policy Research, October 3, 2001

Mark Weisbrot, Dean Baker, Egor Kraev & Judy Chen. The Scorecard on

Globalization 1980-2000: Twenty Years of Diminished Progress. Washington,

DC: Center for Economic and Policy Research, 2001

European Commission - Corporate Social Responsibility

http://europa.eu.int/comm/employment_social/soc-dial/csr/csr_index.htm

Carving out Policy Autonomy for Developing Countries in the WTO. Alvaro

Santos, 2010

Socio-economic impact of WTO accession on rural women. Hai Duong and

Dong Thap, October 2009

WTO and Free Trade. Anup Shah, July 2007

Thailands Post Crissis Trade Policies :Yhe 1999 WTO Review. Peter G

Warr, 2005

Developing Countries In WTO service Negotitations. Juan A Marchetti,

September 2004

Domestic Regulation and Service Trade Liberalization. Mattoo, A., and P.

Sauv, 2004

India and the Multilateral Trading System After Seattle Toward a Proactive

role. Mattoo, A., and A. Subramanian, 2000

Th Li it f T d P li R f i D l i C t i R d ik D i

Documents

ITBOP - Impact of WTO Report