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World Trade Organization

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World Trade Organization
Hi, everyone. Welcome to the class. We will continue from where we had left in the last lecture. So, we are continuing with the International Economic Institutions. So, in the last lecture we discussed about the IMF and the World Bank. So, we talked about what was the you know how did the IMF and the World Bankevolve which was an outcome from the Bretton Woods agreement which happened youknow after the during the World War II time right, but later on that was abolished andthen the IMF and world bank came into existence right.So, ah, but these two in you know along with these two institutions, the third institutionthat is also of very high importance when it comes to economic trade and business is atopic of discussion today, right. So, we will talk about the world trade organizationwhich happens to be one of the most important organizations when it comes to worldtrade right. So, this organization deals with the you know trade rules and among thenations.(Refer Slide Time: 01:34)So, as it says if you can see the WTO is an international organization dealing with thetrade rules among the nation and it is heart are the WTO agreements so, which isnegotiated and signed by the bulk of the worlds trading nations. So, there are around 160– 64 countries right, who are a member and these trading nations they have ratified theseagreements in their own parliaments.Why the what is the purpose of the WTO? It is to help producers of goods and services,exporters and importers to conduct their business right. This replaced the generalagreement on tariff and trade which is basically called earlier as popularly as the GATT.So, the GATT which was formed in 1947 so, that gave way to form the WTO right.It is a forum for the governments to negotiate trade agreements. It is a place for them tosettle the trade disputes. So, trade agreements, trade disputes are settled. It is operates itoperates a system of trade rules. So, rules and regulations are made by the world tradeorganization.Essentially, the WTO is a place where member governments try to sort out the tradeproblems they face with each other. So, in the you can understand since trade is socomplicated and in the world there are and in the world there are so many differentcountries who are trading with each other and there is there is a very very high chancethat there might be disputes among these countries during trade.And, this disputes might not be an outcome just because of economic reasons that couldhave initiated because of some political reasons also right. But, then I takes a form ofeconomic problem right. So, in such a condition whatever the situation may be so, itsdisputes maybe have to be solved. So, in that condition the WTO plays the role to solvethis disputes.The World Trade Organizations deals with the global rules of trade between nations. Itsmain function is to ensure that trade flows smoothly predictably and freely as possibleright.(Refer Slide Time: 03:45)So, let us start with an example in 2012 China lodged a complaint against the US. Whatwas the complaint about? Over the tariff measures with the you know about the tariffmeasures. So, whom did they complain? They complained to the WTO against the US.The United States had hit the Asian country China; that means, with extra import dutiesclaiming those goods were being dumped on the US market to help the Chinesecompanies right to win market share.So, the US government raised the import duties to make the Chinese goods more costlierso that it would not be able to gain ground in the US market. China lodged a complaint inthe WTO. A WTO dispute panel supported the Chinese complaint right against thistariffs and slapped and on a which was slapped on a range of products of this Chineseproducts including paper, steel, tires, magnets, chemicals, kitchen fittings, flooring, windturbines etcetera right.So, China overall won this case.(Refer Slide Time: 04:55)In another case which was you know which happened with India; the US challengedNew Delhi’s incentive schemes and ruled that India violated the global trade rules byproviding up to 7 billion annual export subsidies to its companies in sectors such aspharma, textiles, steel and technology products. The WTO urged India to withdraw theexport subsidy schemes within 6 months right and they said if it fails to comply it couldeventually face punitive tariffs from Washington.In one case it was between China and US where China won the case; in the second caseit was between New Delhi and US where India lost the case and US won the case rather.Trade disputes are rife at the WTO. There are lots of trade disputes obviously, therewould be so many different countries and different you know the preservatives being sodifferent; with members having the right to impose extra duties when goods are soldbelow market prices. However, the countries have to prove that the duties are notdeployed to protect market producers from foreign competitors.What does it say? So, there will be trade disputes right with members also having a rightto impose extra duties when goods, but the condition is when the goods are sold belowthe market prices that is somebody is trying to dump the product in such condition theycan impose extra duties. But, however, it says the country is have to prove that the dutiesare not deployed to protect the domestic producers from the foreign competition.So, the basic purpose of the WTO is to ensure that is a fair deal is going on and the fairbusiness is going on right, so, nobody follows an unfair practice at least among themember nations.(Refer Slide Time: 06:50)How did that WTO originate? I think we discussed just now. So, it originated from theGATT right. So, the GATT which is also known as General Agreement on Tariff andTrade, it range from 48 to 94, right and it provided the rules for much of the world tradein that time and presided over periods that saw some of the highest rates in internationalcommerce.It seemed well-established for this 47 years it was a provisional, it was a provisionalagreement and organization right. So, this was one of the major facts about the you knowGATT it was a provisional agreement.The GATT mainly dealt with trades in goods; another big difference between GATT andWTO is that it dealt only with goods and not services which was included in the WTOwhereas, the WTO and its agreements also cover trade in services and intellectualproperty. So, the birth of the WTO also created new procedures for the settlement ofdisputes right.So, the WTO basically originated from the GATT. In fact, because from the through theUruguay Round. So, there was a Uruguay Round. So, which helped in demolishingrather the you know changing the GATT and moving from the GATT to the WTO.The WTO came into being in 1st Jan 1st January 1995. It was the outcome of the lengthyyou know Uruguay Round of GATT negotiations; Uruguay Round was almost 7 and ahalf years which was double the time period for that you know negotiation. So, the WTOwas essentially an extension of the GATT. The twelfth Ministerial Conference of WTOis going to be held in 2020 June in Nur-Sultan Kazakhstan right.There are some of the facts. So, it is located in Switzerland the headquarters, it wascreated after the Uruguay Round negotiation right. Membership – there are 164countries. So, the WTO currently has 164 members representing 98 percent of the worldtrade. So, this is a huge amount almost 100 percent close to 100 percent. The budget is197 million Swiss francs; secretariat staff, it has 625 and Roberto Azevedo is thedirector-general right. Some of the latest entrants are Liberia and Afghanistan who joinedin 2016.(Refer Slide Time: 09:13)What are the key principles of the GATT and the WTO? Now, the GATT and the WTOare the WTO which became you know which only came from the GATT. So, some ofthe key principles are were like the non-discriminatory principle, freer principle,predictable and transparent principle, protecting against unfair trade, promotingdevelopment of all countries. So, they are five major principles of the WTO.So, for example, in under non-discriminatory you can see fundamental which is the mostfundamental principle the which is called the bedrock of the you know WTO so, there isthe on which the foundation of the WTO lies. So, the most favored nation in the nationaltreatment policy. In freer it is talks about the trade barriers right. So, here it talks aboutbeing more transparent and you know opening the markets. Here it talk talks about unfairpractices and the special provisions.(Refer Slide Time: 10:15)So, let us go one by one. So, the first principle on which the WTO is based is the nondiscriminationpolicy right. What it says, a country should not discriminate between itstrading partners. So, a country should not discriminate between its trading partners.So, the trading partners whoever are there one should not give be giving some you knowadvantage to one and should not be and on the same product should not be you knowcreating a discrimination for the other right. Which is also called as the most favorednation policy; that means, whoever if you are giving treatment a favored nation treatmentto one, you have to give the same treatment to all the 164 countries or all the membercountries right.So, this policy is was like everybody became a trade partner. So, this was this advantageshould be distributed to everybody that is what the most favored nation policy says and itshould not discriminate between it is and own foreign products services or nationals.So, the next you know principle or under the non-discrimination principle is thateverybody should treat. The outside products or the imported goods as a domestic goodright and they should not be creating a discrimination among them the only exceptionsare, but in case of developing countries which are in a growth phase. So, for them it is anexception or regional trade areas and customs unions which are I will explain in the nextlecture after this.So, with that kind of regional integrations right so, regional trade areas free trade areasyou must have heard customs union for example, the European Union. So, for these kindof trade blocs basically which are called the trade blocs. So, for them it is an exception,otherwise if there is one favor given to one country it has to be given to others also that iswhat it says right and treat everybody every imported good as your domestic good.So, that protectionist behavior has to be removed this is what the WTO tries to ensure.For example, you can see India is trading with many countries by imposing some tariffson import or export, but according to the WTO we cannot impose such high tariffs onone trading nation and low tariffs on another right. We have to treat them equally if youare a member of WTO you have to treat everybody equally.The United States gave Vietnam and China the MFN status in 2001, right. So, you knowbefore that there was a serious problem with China and Vietnam and US betweenVietnam and US, China and US that the same year China became a WTO member. So, in2001 they gave the MFN status that is Most Favored Nation status.In fact, around 29 countries to which this most favored nation status is not given and thatwas also that has been removed you know as of now by the US and only I think twocountries; one is Cuba and the other is North Korea still are under that you know they areexempted or they are not in that most favored nation list policy you know list rightotherwise most of the other countries have come into this bracket.The second principle is and open principle more open to make it more free or more open.So, what it says is lowering trade barriers lowering the trade barriers right so, tradebarriers are something for example, it could be tariff it could be non-tariff barriers wehave discussed earlier also. So, tariff are all monetary related policies, tax relatedpolicies duties, non-tariffs are basically like rules agreements whatever you can all nontariff,non-monetary.So, lowering this trade barriers both tariff and non-tariff on non-tariff right to lower thisis one of the most obvious ways of encouraging trade. These barriers include like customduties and measure such as import bans or quotas that restrict quantities right.For example, you can see India has negotiated trade liberalization arrangements withseveral countries and trade groupings including free FTA, Free Trade Associationagreements level schemes and alternate trade relaxation programs with ASEANAssociation of the Southeast Asian Nations Sri Lanka and Thailand. Similarly, withIndia and Afghanistan have created a free trade agreement, India – Bangladesh, India andBhutan. So, what it says is the objective is to lower the trade barriers.(Refer Slide Time: 14:43)The third point it says is it has to be the principle as per principle of the WTO business orthe member nations have to ensure a higher degree of predictability and transparency.So, the foreign companies, investors and governments should ensure that trade barriersare not arbitrarily reached; that means, suddenly it is for somebody and not for somebodylike of a discrimination. So, investments with stability and predictability are encouragedright, job opportunities are created and consumers can take full advantage of thecompetition. So, it could be their choice for and the low prices.So, as per the price advantage they can buy any product from any market not necessarilythat own domestic product. So, this is what it tries to make. So, the whole world likes tolooks like one single market in terms of the WTO, but then you know there arearguments against a for example, the general arguments that goes for anti globalizationfor example.This is not as simple as it looks right because; however, equality it may look fromoutside, but the stronger forces will necessarily have more power with them and they canexploit a situations better in a larger way and the poor countries might not be able to dothe same. And, they in the result they might become more poorer and the rich mightbecome more richer. This is the fear of you know all these things.Example, you see India changes policies regarding FDI in single brand retail right. So,Indian government released a press note for other countries regarding it is policy change.Currently 100 percent FDI is permitted in the sector with certain conditions including 30percent mandatory local sourcing preferably form the MSMEs.So, the next point under the WTO principle is to make trade more competitive. So, underthis what it says is, it tries to discourage unfair practices right such as export subsidies,dumping products at below cost to gain market share and how governments can respondin particular by charging additional import duties calculated to for compensate for thedamage caused by unfair trade.For example, you see India imposes sanctions on import of tyres from China as itthreatens the domestic tyre manufacturing companies sales right. India may cut oreliminate tariffs on 80 percent of products imported from China under a 16 country freetrade agreement. So, here this is do not mix it up this is one example where India hasbeen imposing sanctions on the import of tyres from China to just make the cost go up,so that in the domestic players would become more stable or would be to protect thedomestic players. So, this is a case.On the other side, what is happened is, India was asked forced to cut or eliminate thetariffs on 80 percent of the products imported from China under a 16 country free tradeagreement right which happened recently in around 2000 and I think 18 or 19 it hashappened right. So, this says that the WTO forces the countries to go for a more fairertrade right and not to you know try to in order to protect the domestic economy theyshould not go for a unfair trade practices; that means, what?For example, if somebody is very competitive they would take the advantage they wouldgain right. So, if you are not being competitive you are trying to be you are just trying toprotect your domestic industry by increasing the prices and make it make the othercountry look you know uncompetitive, then that is wrong. So, that is where the WTOwould come into picture and protect the competitive nation.The last point under the WTO principle is to protect the environment. It says the WTOsagreements permit member should take measures to protect not only the environment,but also public health, animals health and plant health. In other words, members must notuse environmental protection measures as a means of introducing a discriminatory tradebarrier which is a form of which is talk today is more largely in the circular economy.When he say or tries to say that you know the modern society has to look into you knowusing and recycling, reusing of products more and more and not exploiting mothernature. So, that we can continue keeping this natural resources intact for at least our nextgenerations to come right.(Refer Slide Time: 19:24)Some of the functions of the WTO now: administering the WTO trade agreements. So,first we discussed the principle now the functions. So, administrating the administeringthe trade agreements forum for trade negotiation, handling the trade dispute, monitoringthe trade policies national trade policies and finally, technical assistance and training fordeveloping countries right and cooperation with other international organizations. So,these are some of the functions right.So, as for example, you see look into in fact, technical assistance when you say let us saytechnical assistance programs help the WTO members to better understand the rights andobligations in the multilateral trading system. This strengthens the country’s capacity tobenefit from participation. So, somebody might as an for you know somebody whoprofesses anti-globalization he would feel being a member of the WTO rather is a lossfor a country which is not able to compete right and for the larger or the more productivecountries they would exploit.So, this tries to educate everybody that it is not so, that is not the reason right. And,WTO maintains regular dialogue with the civil society organizations to enhancecooperation and increase their awareness of the WTO activities right.(Refer Slide Time: 20:37)So, now apart from the you know functions now which we have already discussed atlength the structure of the WTO.So, the structure is basically it starts with the ministerial conference right, then you havethe general council right. The General Council is handled by again you know the day today work in between the ministerial conferences is handled by three bodies that says theGeneral Council, the dispute settlement body, the trade review trade policy review bodyright.So, the General Council is the highest level decision making body in Geneva. It hasrepresentatives from all member governments and has the authority to act on behalf ofthe ministerial conference which meets every two years, right. The current chair isSunanta Kangvalkulkij of Thailand right. And the General Council meets under differentrules as the dispute settlement body and the trade policy review body.(Refer Slide Time: 21:33)The third level is what it is says is the councils basically. Three more councils eachhandling a different broad area of trade report to the General Council. So, here you hadthe General Council right. So, there are three more bodies who report to them – TheCouncil for Trade in Goods, Goods Council; Council for Trade in Services, ServicesCouncil; The Council for Trade Related Aspects of Intellectual Property Rights right,TRIPS Council.Apart from these three then, there are six other bodies which report to the GeneralCouncil. The scope of their coverage is small. So, they are called committees; they arenot councils, but committees. But, they still consists of all WTO members. They coverissues such as trade and development environment regional trading arrangements andadministrative issues.The fourth level what it says, each of the higher level councils has subsidiary bodiesright. The goods council has now 12 subsidiary committees dealing with specificsubjects such as agriculture, market access, subsidies, technical barriers to trade, sanitaryand phytosanitary measures, import licensing, customs valuation and the new WTOcommittee on Trade Facilitation right.(Refer Slide Time: 22:46)When we talk about the WTO since one of the most important job is the disputesettlement. There are two important bodies under it. What it says? One is a disputesettlement body and the appellate body.Now, what are these two and what are the difference between them? Let us talk about it.For example, the dispute settlement body the General Council convinced as the DisputeSettlement Body as we discussed in the last slide also to deal with disputes between theWTO members.This body has the authority to establish dispute settlement panels right, refer matters toarbitration, adopt panel. Appellate Body and arbitration reports, maintenancesurveillance for the implementation and recommendation of the rule and rulings,contained in such reports and authorized suspension and concessions of concessions inthe event of non-compliance with those recommendations and rulings. So, basically ittries to manage the disputes right.What is the Appellate Body? It was established in 1995 under Article 17 of theunderstanding on rules and procedures governing the settlement of disputes right. Thisthis is a standing body of seven persons that hears appeals from the reports issued bypanels which you discussed here in disputes brought by the WTO members.This body can uphold, modify or reverse the legal findings and conclusions of a panelright, and appellate body reports once adopted by the dispute settlement body. This mustbe accepted by the parties to the dispute the appellate body has it is seat in Geneva. So,these are the two bodies right. So, this is a dispute settlement body and this is theappellate body. So, this is like it functions you know and finally, it gives a verdict whichhas to be followed by everybody.(Refer Slide Time: 24:38)Now, this is how the structure looks like: ministerial conference meets every two years,then the General Council, it is then the you have the TPRB Trade Policy Review Body,dispute settlement body right and under the council you have committees workinggroups, council for trade in goods, council for TRIPS intellectual property rights, councilfor services, TRIMS right investment measures and negotiation committees right.This was a little if you have a little larger you know outlook it looks something like this.(Refer Slide Time: 25:07)So, right the same thing. So, you this instead of me getting into it this slide is you can gothrough this slide. So, the conference council so, these are the committees right ondifferent committees and what they are you know what involves what do they look intofor example, the committees and market access agriculture, these are all given in detailsin this slide. So, this is the structure of the WTO right. So, you can have a look at it.(Refer Slide Time: 25:32)Some these are the some of the ministerial conferences which I have been held in thepast from 96 to 2020 this is with the recent one right. You can also have a look at it lateron and see when this the different you know conferences happen of the WTO.(Refer Slide Time: 25:47)Now, coming to the agreements: The WTO agreements covers goods, services and theintellectual property as we have discussed earlier. They include individual countriescommitments to lower customs tariffs and other trade barriers and to open and keep openservices markets. So, basically it is to make a lower the tariff the trade barriers basicallyright.These agreements are often called WTO trade rules and described as rule based a systembased on rules right. So, the agreements for the two largest areas are goods and services.Earlier we said GATT had only goods and no services, WTO included the service as wellright.Now, the Agreement on Agriculture – AoA which is called is an international treaty ofthe WTO it was negotiated during the Uruguay Round right of the General Agreementon tariffs and trade. So, you remember as I had said that the Uruguay Round was theround which came after the GATT and from here the birth of WTO happened.The agreement on agriculture constitutes of three pillars. So, what it says? Theagreement on agriculture was made to look into to take into you know the agriculture andwhy agriculture will discuss first of all let us see what are the three pillars.(Refer Slide Time: 27:04)So, first of all you know the three pillars as it says is the domestic support, marketaccess and export subsidies. We will discuss at length all three of them.First of all, why the agriculture sector? Why this was so important? In developingcountries you can see this agriculture and rural development the play a very crucial rolein reducing poverty. Obviously, in countries like India, Bangladesh, Pakistan you canthink any other country Philippines. These sectors contribute a large share of the GDPand there are primary source of employment. So, the growth in the agriculture sector is 2to 4 times more effective in raising incomes among the poorest compared to othersectors; it has been seen through research.In 2016, analysis found that 65 percent of poor working adults made a living throughagriculture and it is also crucial to the economic growth. In 2014, it accounted for onethird of the global GDP. So, that is why the WTO thought of right having a agreement onagriculture right, yeah.(Refer Slide Time: 28:08)So, in the Uruguay Round where this was brought into discussion first. So, as I had saidearlier the Uruguay Round was the one which paved way for the WTO here. This wasaround which took seven and a half years 123 countries took part and they coveredalmost all trade from toothbrush, to pleasure boats, banking from genes of wild rice toAIDS treatment everything it was discussed.And, it is quite simply was the largest trade negotiation ever in history right the UruguayRound right. So, there was the Doha round then the Uruguay Round. So, the followingthe Uruguay Round negotiation the agricultural products were brought under this AoAright.The agreement is made on three pillars as we had discussed market, domestic and exportcompetition. Except lesser developed countries, all the WTO members were required tomake commitments in all these areas in order to liberalize agricultural trade right.Developing countries were given as limited element of special and differential treatment.Some special treatment was given to those some of the poor countries ok. So, these arethe three agreement on agriculture are stands on three pillars. So, the first pillar, secondpillar and third pillar let us say. So, the articles are given you can go through thesearticles and you can check also if you want to go into deep right.So, I hope today we have understood about the inception of the WTO and the GATT andthe Uruguay Round, the principles of the WTO and some of its functions right. So, wealso have just entered into the agreement and agriculture and because of the paucity oftime we will stop here. And, in the next lecture we will continue from here ok.Thank you very much.