Prof. Guangming RAO of CTBU Lecture 2 Framework of WTO rules Teaching purpose ： Understanding WTO functions and its framework of rules. Teaching Focus:

Prof. Guangming RAO of CTBU

Lecture 2 Framework of WTO rules

Teaching purposeTeaching purpose ：： Understanding WTO functions and its framework of rules.Teaching Focus:Teaching Focus: main principles and its exceptions Teaching hoursTeaching hours ：： 6 hoursTeaching methodsTeaching methods ：： Concept analysis and case study.Teaching proceedingsTeaching proceedings: 2.1 WTO Functions 2.2 WTO Framework of rules2.3 Most-favore nation treatment2.4 National treatment

2.5 Transparency Video: basic principles of the WTO system


The principles of The trading system should be ... without discrimination — a country should

not discriminate between its trading partners (giving them equally “most-favoured-nation” or MFN status); and it should not discriminate between its own and foreign products, services or nationals (giving them “national treatment”);

freer — barriers coming down through negotiation;

2.1 WTO functions (1/4)


predictable — foreign companies, investors and governments should be confident that trade barriers (including tariffs and non-tariff barriers) should not be raised arbitrarily; tariff rates and market-opening commitments are “bound” in the WTO;

more competitive — discouraging “unfair” practices such as export subsidies and dumping products at below cost to gain market share;

more beneficial for less developed countries — giving them more time to adjust, greater flexibility, and special privileges.



Implementation, administration and operation of the covered agreements

It provides the framework, for those of its Members that have accepted them, for facilitating its implementation, administration and operation of the Plurilateral Trade Agreements.

Forum for negotiations It may also, on decision by the Ministerial Conference,

provide a forum for further negotiations, and a framework for the implementation of their results, on other issues arising in the multilateral trade relations among its Members.



Dispute settlement The WTO administers the integrated dispute settlement syste

m, which is a central element in providing security and predictability to the multilateral trading system, serving to preserve the rights and obligations of the Members of the WTO.

Review of national trade policies The WTO administers the Trade Policy Review Mechanism, w

hich is designed to contribute to greater transparency and understanding of the trade policies and practices of WTO Members, to their improved adherence to the rules, disciplines and commitments of the multilateral trading system, and hence to the smoother functioning of the system.

Coherence in global economic policy-making A Ministerial Declaration adopted at the Marrakesh Ministerial

Meeting recognizes the role of trade liberalization in achieving greater coherence in global economic policy-making. For this purpose, it cooperates with the IMF and the World Bank.



GATT 1947 （ 38 articles ）

• MFN & Tariffs concession• Non-tariffs measures and Dispute settlement• Market access in general aspects of business Trade and developing countries

2.2 WTO Framework of rules (1/6)


include ： 1.GATT1994 ， 2. Agreement on Agriculture; 3. Sanitary and Phytosanitary Measures Agreement （ SPS) 4. Agreement on Textiles and Clothing (ATC); 5. Technical Barriers to Trade Agreement (TBT); 6. Trade-Related Investment Measures (TRIMs) Agreement; 7. GATT1994 Articles VI-Anti-Dumping Agreement; 8. GATT1994 Article VII- Rules for the evaluation of goods at c

ustoms; 9. Preshipment Inspection Agreement; 10. Rules of Origin Agreement; 11. Agreement on Import Licensing Procedures; 12. Subsidies and Countervailing Measures; 13. Agreement on Safeguards.

Enclosure 1 A



1 B General Agreement on Trade in services （ GATS ） ;

1 C Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS);

2 Understanding on Rules and Procedures Governing the Settlement of Disputes;

3 Trade Policy Review Mechanism. 4 Agreement on Trade in Civil Aircraft, Agreemen

t on Government Procurement, and other regulations

Enclosure 1 B ， 1 C ， 2 ， 3 ，4



DC_industrialization

Export growth

WTO_GATT

LDC_ goods barriers

NI rise services rise WTO_GATS

LDC_ services barriers

Develop-ing Gap

Investment transfer

WTO_ TRIMs

LDC_ cross- cultural barriers

Tech transfer

WTO_ TRIPs

LDC_ property rights violation

External-ization

New (3rd DC) industrialized nations’ goods export

DC_ goods import

Trade protection up

N-S Gap



Fair competition

Free investment

Tariffs concession, non-tariff barriers abolished

Exception, safeguarding

MFN treatment, national treatment

Antidumping, TRIPS

Free trade

Goal of the GATT： trade liberalization



WTO: Basic principles The basic principles of the multilateral trading system, as embodied in the WTO Agreement, derive mostly from the principles that constituted the foundations of the GATT. Trade without discrimination is one of these basic principles, guaranteed through the operation of various clauses included in the multilateral agreements on trade in goods, in the GATS, and in TRIPs Agreement

• Most-favor-nation treatment• National treatment• Tariffs Concession • Prohibition of quantitative limitation • Transparency



2.3 Most-favored-nation treatment (MFN)(1/4)

• Most-favoured-nation (MFN): treating other people equally: Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.

• Members of the WTO have entered into similar commitments, under the GATT 1994 (Article I) for trade in goods,

• under the GATS (Article II) in relation to treatment of service suppliers and trade in services, and

• under the TRIPs Agreement (Article 4) in regard to the protection of intellectual property.


Why ‘most-favoured’?• Article I: Any advantage, favor, privilege or immunity granted by any contracting party to any product originating in or destined for any other cany other countryountry shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting all other contracting partiesparties. (“ 缔约国对来自或输往任何其他国家任何其他国家的产品，所给予的任何利益、优惠、特权或豁免，应立即无条件地给予来自或输往所有其他缔约国所有其他缔约国的相同产品” )



Some exceptions for MFN treatment

For example, countries can set up a free trade agreement that applies only to goods traded within the group —discriminating against goods from outside.

Or they can give developing countries special access to their markets.

Or a country can raise barriers against products that are considered to be traded unfairly from specific countries.

And in services, countries are allowed, in limited circumstances, to discriminate.

But the agreements only permit these exceptions under strict conditions.

In general, MFN means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners — whether rich or poor, weak or strong.



Regional trade arrangements(CEPA, the Closer Economic Partnership Arrangement between Hong kong and China Mainland ) Preferential treatment for developing countries Trade in borders ( business around 15km zone); Trade in respect to intellectual property rightsExceptions on the GATS

Some exceptions for MFN treatment


Prof. Guangming RAO of CTBUCEPA : Jan.1st, 2004Product Types

Cumulative No. of CO(CEPA) Applications Received

Cumulative No. of CO(CEPA)s Approved

1 Food and Beverages 2,868 2,824

2 Food Residues and Animal Fodder 3 3

3 Chemical Products 918 866

4 Pharmaceutical Products 2,470 2,417

5 Coloring Matters 713 692

6 Cosmetics 31 26

7 Plastics and Plastic Articles 2,083 2,051

8 Leather and Firkin Articles 8 6

9 Paper and Printed Articles 992 954

10 Textiles and Clothing 5,313 4,937

11 Jewelry and Precious Metals 101 100

12 Base Metal Products 607 596

13 Machinery and Mechanical Appliances 9 8

14 Electrical and Electronic Products 271 259

15 Optical, Photographic and Cinematographic Instruments & Parts

50 47

16 Clocks and Watches and Parts Thereof 113 101

17 Furniture 1 1

18 Toys and Games or Sports Requisites 1 1

19 Miscellaneous 2 2

Total 16,475 15,810


CEPA : Jan.1st, 2004 Service Sector No. of Applications Received

No. of ApplicationsApproved

1 Legal services 12 12

2 Construction professional services and Construction and related engineering services

56 50

3 Medical and dental services 1 1

4 Real estate services 17 16

5 Advertising services 79 75

6 Management consulting services 34 26

7 Convention and exhibition services 9 9

8 Value-added telecommunications services 28 24

9 Audiovisual services 18 16

10 Distribution services 258 252

11 All insurance and insurance-related services 3 3

12Banking and other financial services (excluding insurance and securities) 7 7

13 Securities and future services 6 5

14 Tourism and travel related services 5 5

15 Transport and logistics services 459 455

16 Information technology services 9 9

17 Job referral agency services and job intermediary services 17 16

18 Cultural services (excluding audiovisual services) 1 1

19 Airport Services 5 5

20 Trade mark agency services 2 2

Total 1026 989


• Imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market.The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents.

2.4 National treatment (1/6)

Treating foreigners and locals equally


• This principle of “national treatment” is also found in all the three main WTO agreements (Article 3 of GATT, Article 17 of GATS and Article 3 of TRIPS), although once again the principle is handled slightly differently in each of these.

National treatment only applies once a product, service or item of property has entered the market. Therefore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax.

Treating foreigners and locals equally



What is the National Treatment? The contracting parties recognize that internal tax

es and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production

( 给外国人、外国产品、外国资本、外国劳务以不低于不低于本国国人的待遇 ) 。



2000 2002 2003

China 0.47 0.55 0.70

U.S. 13.80 14.80 15.00

Japan 10.19 9.62 11.17

UK 14.44 17.90 19.48

Average income comparing （ non-agricultural ） US$/hour

ER :1$=8.28RMB,data origin: International Statistics 2004

2000 2002 2003

China 46.6 46.9 46.7

U.S. 34.5 34.2 46.7

Japan 43.0 42.4 42.1

UK 39.8 39.5 39.6

Working time comparing (hours/week)National Treatment for workforce



Exceptions for National Treatment

General exception: Considering the security of national economic development:

1. Government procurement

2. Father’s clauses3. Differential charges for transportation: The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product.

4. Indirect subsidies to the NEs for protection of environment and domestic infant industries

5. Cinema Films



Security exception:

1. protection of public morals, national treasures

2. Protection of human, animal or plant life and health

3. Protection of business secrets

Exceptions for National Treatment



2.5 Transparency Provisions on notification requirements and

the Trade Policy Review Mechanism are set out in the WTO Agreement and its Annexes, with the objective of guaranteeing the fullest transparency possible in the trade policies of its Members in goods, services and the protection of intellectual property rights.

• Article X of GATT 1994 deals with the publication and administration of trade regulations;

• Article III of GATS sets out provisions on transparency as one of the general obligations and disciplines under that agreement;

• Article 3 establishes transparency rules for the TRIPs Agreement.


Problem-solving:1. Suppose a trade dispute arises because a country has taken action on

trade (for example imposed a tax or restricted imports) under an environmental agreement outside the WTO and another country objects. Should the dispute be handled under the WTO or under the other agreement?

2. Look at the following cartoon below, and tell your impressions about it to the class.


Questions to be discussed

What is the difference between the rules of MFN treatment and National Treatment?

Which is better of global trade liberalization and regional economic integration? Why?

Which develops faster of global trade liberalization and regional economic integration? Why?

Documents

Prof. Guangming RAO of CTBU Lecture 2 Framework of WTO rules Teaching purpose ： Understanding WTO functions and its framework of rules. Teaching Focus: