STUDY NOTES

[Link]. Semester-I

Subject: Business Environment

Chapter: Unit 6- International and Technological Environment

World Trade Organisation (WTO)

Prepared by: Dr. Sukumar Pal

Associate Professor in Commerce
Sree Chaitanya Mahavidyalaya
 World Trade Organisation (WTO)

World Trade Organization (WTO) was formed as a replacement for GATT in 1 January 1995 with the
purpose of supervising and liberalizing international trade. The proposal for the formation of WTO was put forward
in the Eighth round of negotiation of GATT held at Punta Del Este in Uruguay in 1986 (known as Uruguay Round).
The ‘Marrakesh Declaration’ of 15th April 1994, affirmed that the results of the Uruguay Round would “strengthen
the world economy and lead to more trade, investment, employment and income growth through the world.” The
WTO is the embodiment of the Uruguay Round results and the successor to the General Agreement on Tariffs and
Trade (GATT).
The primary purpose of the organisation is to open trade for the benefit of all. The organization deals with
regulation of trade between participating countries, it also provides a framework for negotiations and
formalizations of trade agreements. It is also responsible for enforcing trade laws, agreements and resolving
disputes. The WTO was created with the purpose of being a stronger and having a more permanent framework
compared to the previous GATT. It also administers the trade agreements negotiated by its members, in particular
the GATT, the GATS (General Agreement on Trade in Services), and the TRIPS (Trade Related Aspects of
Intellectual Property Rights) in addition to trade in goods.
The WTO currently has 161 members, of which 117 are developing countries or separate customs
territories as on 26 April 2015. WTO activities are supported by a Secretariat of 640 staff, led by the WTO Director-
General. The Secretariat is located in Geneva, Switzerland, and has an annual budget of approximately
CHF 197 million Swiss Francs ($180 million, €130 million). The three official languages of the WTO are English,
French and Spanish.
Timeline of GATT and the WTO
1944: At the Bretton Woods Conference, which created the World Bank and International Monetary Fund
(IMF), there is talk of a third organization, the International Trade Organization (ITO).

1947: As support for another international organization wanes in the U.S. Congress, the General Agreement
on Tariffs and Trade (GATT) is created. The GATT treaty creates a set of rules to govern trade
among 23 member countries rather than a formal institution.
1950: Formal U.S. withdrawal from the ITO concept as the U.S. administration abandons efforts to seek
congressional ratification of the ITO.
1951–86: Periodic negotiating rounds occur, with occasional discussions of reforms of GATT. In the 1980s,
serious problems with dispute resolutions arise.
1986–94: The Uruguay Round, a new round of trade negotiations, is launched. This culminates in a 1994 treaty
that establishes the World Trade Organization (WTO).
1995: The WTO is created at the end of the Uruguay Round, replacing GATT
2003: The WTO consists of 146 members, accounting for approximately 97 percent of world trade.
Objectives of WTO
The WTO reiterates the objectives of GATT which are as follows:
 Raising standard of living and income, promoting full employment, expanding production and trade, and
optimum utilisation of world resources.
 Introduce sustainable economic development-a concept which envisages the development and environment can
go together.
 Taking positive steps to ensure that developing countries, especially the least developed ones, secure a better
share of growth in world trade.
 Promote trade flaws by encouraging nations to adopt non-discriminatory and predictable trade policies.
 Establish procedures for solving trade disputes among members.
 Reduction of trade barriers and the elimination of discrimination.
 Constituting the basis of an integrated, more viable and more durable multilateral trading system.
Features of the WTO agreements
The salient features of this agreement (i.e. the agreement undertaken during the Uruguay Round) are also
considered as the basic features of the agreements for the formation of WTO. These are as follows:
(1) Reforms in agricultural trade
According to this arrangement, the developed member countries have to reduce their tariffs on agricultural
commodities by 36 per cent on an average over a period of 6 years. On the other hand, the developing countries
should also reduce these tariffs by 24 per cent over a period of 10 years.
(2) Reforms in textile trade
Under this arrangement, the developed countries would gradually abolish import quotas on textiles and
clothing (which were in force since 1974 under the Multi-fibre arrangement), providing greater opportunities
to the developing countries to export their cotton textile products.
(3) Greater market access
This provides a framework for (almost) free trade among the member nations through substantial reduction
in their tariffs on industrial and agricultural products.
(4) Greater access to foreign investment
Agreement on Trade Related Investment measures (TRIMS) was undertaken to provide for a national
treatment to foreign investments through the removal of quantitative restriction by the member countries on
such foreign investment.
(5) Protection to intellectual property
The Agreement on Trade Related Intellectual Property Rights (TRIPS) lays down norms and standards for
safeguarding seven types of intellectual property, viz, copyright, geographical indication, trademarks,
industrial design, patents, undisclosed information and layout designs of integrated circuits.
(6) Progressive liberalisation in the trade of services
Trade in services like banking, insurance, travel and tourism, etc, among the member countries should also be
expanded with least restrictions.
Functions of the WTO:
In the broadest of terms, the primary function of the WTO is to:
provide the common institutional framework for the conduct of trade relations among its Members in matters
related to the agreements and associated legal instruments included in the Annexes to [the WTO] Agreement. More
specifically, the WTO has been assigned five widely defined functions.
These functions are set out in Article III of the WTO Agreement and are described below.
• Administering and implementing the WTO agreements
A first function of the WTO is to facilitate the implementation, administration and operation of the WTO
Agreement and the multilateral and plurilateral agreements annexed to it.
• Forum for trade negotiations
A second function of the WTO is to provide a permanent forum for negotiations amongst its Members.
These negotiations may concern matters already dealt with in the WTO agreements but may also concern trade
matters currently not yet addressed in WTO law. The Doha Ministerial Declaration explicitly states:
The negotiations shall be conducted in a transparent manner among participants, in order to facilitate the effective
participation of all. They shall be conducted with a view to ensuring benefits to all participants and to achieving an overall
balance in the outcome of the negotiations.
• Handling trade disputes
A third and very important function of the WTO is the administration of the WTO dispute settlement
system.
• Monitoring national trade policies
A fourth function of the WTO is the administration of the trade policy review mechanism (the “TPRM”).
Under the TPRM, the trade policies and practices of all Members are subject to periodic review. The trade policy
reviews are carried out by the Trade Policy Review Body on the basis of two reports: a report supplied by the
Member under review, and a report drawn up by the WTO Secretariat. It is important to note that the TPRM is
not intended to serve as a basis for the enforcement of specific obligations under the WTO agreements or for
dispute settlement procedures, or to impose new policy commitments on Members.
• Technical assistance and training for developing countries
Assisting developing countries in trade policy issues, through technical assistance and training
programmes.
• Cooperation with other international organizations
A fifth and final function of the WTO is to cooperate with international organisations and non-
governmental organizations. The WTO, with a view to achieve greater coherence in global economic policy, will
also co-operate with the International Monetary Fund (IMF) and the World Bank.

10 things the WTO can do

The WTO can ...
1 ... cut living costs and raise living standards
2 ... settle disputes and reduce trade tensions
3 ... stimulate economic growth and employment
4 ... cut the cost of doing business internationally
5 ... encourage good governance
6 ... help countries develop
7 ... give the weak a stronger voice
8 ... support the environment and health
9 ... contribute to peace and stability
10 ... be effective without hitting the headlines
Understanding the WTO
 The first step is to talk.

 Essentially, the WTO is a place where member governments go, to try to sort out the trade problems they
face with each other.

 At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations.

 But the WTO is not just about liberalizing trade, and in some circumstances its rules support maintaining
trade barriers — for example to protect consumers, prevent the spread of disease or protect the
environment.

Institutional Structure of the WTO

To carry out the functions and tasks entrusted to the WTO, the WTO Agreement provides for a manifold
of bodies. The basic institutional structure of the WTO is set out in Article IV of the WTO Agreement. Subordinate
committees and working groups have been added to this structure by later decisions.

Ministerial Conference

The Ministerial Conference is the supreme WTO body. The Ministerial Conference is composed of
minister-level representatives of all Members. The Ministerial Conference has decision-making powers on all
matters under any of the multilateral WTO agreements. Since 1995, there have been four sessions of the Ministerial
Conference, each lasting only a few days: Singapore (1996), Geneva (1998), Seattle (1999) and Doha (2001). The
Ministerial Conference held in 2001 – focussed on issues such as eliminating agricultural tariffs and subsidies,
reducing tariffs on manufactured goods exported to developing countries and freeing trade in services. Since the
Ministerial Conference is required to meet at least once every two years. The “Ministerial” offer a much-needed
bi-annual opportunity to give political leadership and guidance to the WTO and its actions.
General Council

The General Council is composed of ambassador-level diplomats and normally meets once every two
months. All WTO Members are represented in the General Council. The General Council is responsible for the
continuing, day-to-day management of the WTO and its many activities. In between sessions of the Ministerial
Conference, the General Council exercises the full powers of the Ministerial Conference. The General Council is
responsible for the adoption of the annual budget and the financial regulations. The functions assigned to the
General Council also concern dispute settlement and trade policy review. The WTO Agreement state, the General
Council convenes as appropriate to discharge the responsibilities of the Dispute Settlement Body (the “DSB”) and
the Trade Policy Review Body (the “TPRB”) respectively.
Specialized Councils, Committees and Working Groups

At the level below the General Council, the DSB and the TPRB, there are three, so-called specialized
Councils: the Council for Trade in Goods; the Council for Trade in Services; and the Council for TRIPS. All WTO
Members are represented in these specialized Councils. They assist the General Council and the Ministerial
Conference in carrying out their functions. They carry out the tasks that the General Council or provisions of the
relevant agreements have entrusted to them.
Apart from three specialized Councils, there is a number of committees and working groups to assist the
Ministerial Conference and the General Council in carrying out their functions. The WTO Agreement itself
provides for three such committees: the Committee on Trade and Development, the Commit-tee on Balance-of-
Payments Restrictions and the Com-mittee on Budget, Finance and Administration.

WTO Secretariat
The WTO has a Secretariat based in Geneva, Switzerland, with a staff of some 550 officials. This makes it
undoubtedly one of the smallest Secretariats of the main international organizations. A Director-General, who is
appointed by the Ministerial Conference, heads the Secretariat. The Ministerial Conference also adopts regulations
setting out the powers, duties, conditions of service and term of office of the Director-General. The current
Director- General, Roberto Azevêdo is the sixth Director-General of the WTO. His appointment took effect on 1
September 2013 for a four-year term.

Role of the Secretariat

The WTO Secretariat, with offices only in Geneva, has 639 regular staff and is headed by a Director-
General. Since decisions are taken by Members only, the Secretariat has no decision-making powers. Its main
duties are to supply technical and professional support for the various councils and committees, to provide technical
assistance for developing countries, to monitor and analyze developments in world trade, to provide information
to the public and the media and to organize the ministerial conferences. The Secretariat also provides some forms
of legal assistance in the dispute settlement process and advises governments wishing to become Members of the
WTO.

The responsibility of the WTO Secretariat is to provide top-quality, independent support to WTO member
governments on all of the activities that are carried out by the Organization, and to serve the WTO with
professionalism, impartiality and integrity.

The Secretariat is a multicultural team of highly-qualified individuals who possess the wide range of skills,
knowledge and experience required to handle the Secretariat's responsibilities and to work together as an efficient
and diligent international civil service.

The Secretariat staff of includes individuals representing about 70 nationalities. The professional staff is composed
mostly of economists, lawyers and others with a specialization in international trade policy. There is also a
substantial number of personnel working in support services, including informatics, finance, human resources and
language services. The total staff complement is composed almost equally of men and women. The working
languages of the WTO are English, French and Spanish.

The Appellate Body was established by the Understanding on Rules and Procedures Governing the Settlement of
Disputes to consider appeals to decisions by Dispute Settlement panels. The Appellate Body has its own Secretariat.
The seven-member Appellate Body consists of individuals with recognized standing in the fields of law and
international trade. They are appointed to a four-year term, and may be reappointed once
WTO structure
All WTO members may participate in all councils, committees, etc, except Appellate Body,
Dispute Settlement panels, and plurilateral committees.

Ministerial Conference

General Council meeting as General Council meeting as

Dispute Settlement General Council Trade Policy Review
Body Body

Appellate Body
Dispute Settlement panels

Committees on
Council for Council for Council for
Trade and Environment
Trade and Development Trade in Goods Trade-Related Aspects Trade in Services
Subcommittee on Least- of Intellectual
Developed Countries Property Rights
Regional Trade Agreements
Balance of Payments Committees on
Committees on
Restrictions
Market Access Trade in Financial Services
Budget, Finance and
Agriculture Specific Commitments
Administration
Sanitary and Phytosanitary
Measures Working parties on
Working parties on
Accession Technical Barriers to Trade Domestic Regulation

Subsidies and Countervailing GATS Rules

Working groups on Measures
Trade, debt and finance Anti-Dumping Practices Plurilaterals
Trade and technology Customs Valuation Trade in Civil Aircraft Committee
transfer Rules of Origin Government Procurement Committee
(Inactive: Import Licensing
(Relationship between Trade-Related Investment
Trade and Investment Measures
(Interaction between Safeguards Doha Development Agenda:
Trade and Competition TNC and its bodies
Policy Working party on
State-Trading Enterprises
(Transparency in Trade Negotiations
Government Procurement)
Committee

Special Sessions of
Services Council / TRIPS Council / Dispute Settlement
Body / Agriculture Committee and Cotton Sub-
Committee / Trade and Development Committee /
Trade and Environment Committee
Plurilateral
Information Technology Agreement Negotiating groups on
Committee Market Access / Rules / Trade Facilitation

Key
Reporting to General Council (or a subsidiary)
Reporting to Dispute Settlement Body
Plurilateral committees inform the General Council or Goods Council of their activities, although these agreements
are not signed by all WTO members
Trade Negotiations Committee reports to General Council
The General Council also meets as the Trade Policy Review Body and Dispute Settlement Body
The Uruguay Round
It took seven and a half years, almost twice the original schedule. By the end, 123 countries were taking
part. It covered almost all trade, from toothbrushes to pleasure boats, from banking to telecommunications, from
the genes of wild rice to AIDS treatments. It was quite simply the largest trade negotiation ever, and most probably
the largest negotiation of any kind in history. At times it seemed doomed to fail. But in the end, the Uruguay Round
brought about the biggest reform of the world’s trading system since GATT was created at the end of the Second
World War. And yet, despite its troubled progress, the Uruguay Round did see some early results. Within only two
years, participants had agreed on a package of cuts in import duties on tropical products — which are mainly
exported by developing countries. They had also revised the rules for settling disputes, with some measures
implemented on the spot. And they called for regular reports on GATT members’ trade policies, a move considered
important for making trade regimes transparent around the world.

A round to end all rounds?

The seeds of the Uruguay Round were sown in November 1982 at a ministerial meeting of GATT members
in Geneva. Although the ministers intended to launch a major new negotiation, the conference stalled on agriculture
and was widely regarded as a failure. In fact, the work programme that the ministers agreed formed the basis for
what was to become the Uruguay Round negotiating agenda. Nevertheless, it took four more years of exploring,
clarifying issues and painstaking consensus-building, before ministers agreed to launch the new round. They did
so in September 1986, in Punta del Este, Uruguay. They eventually accepted a negotiating agenda that covered
virtually every outstanding trade policy issue. The talks were going to extend the trading system into several new
areas, notably trade in services and intellectual property, and to reform trade in the sensitive sectors of agriculture
and textiles. All the original GATT articles were up for review. It was the biggest negotiating mandate on trade
ever agreed, and the ministers gave themselves four years to complete it. Two years later, in December 1988,
ministers met again in Montreal, Canada, for what was supposed to be an assessment of progress at the round’s
half-way point. The purpose was to clarify the agenda for the remaining two years, but the talks ended in a deadlock
that was not resolved until officials met more quietly in Geneva the following April. Despite the difficulty, during
the Montreal meeting, ministers did agree a package of early results. These included some concessions on market
access for tropical products — aimed at assisting developing countries — as well as a streamlined dispute
settlement system, and the Trade Policy Review Mechanism which provided for the first comprehensive,
systematic and regular reviews of national trade policies and practices of GATT members. The round was supposed
to end when ministers met once more in Brussels, in December 1990. But they disagreed on how to reform
agricultural trade and decided to extend the talks. The Uruguay Round entered its bleakest period.
Despite the poor political outlook, a considerable amount of technical work continued, leading to the first
draft of a final legal agreement. This draft “Final Act” was compiled by the then GATT director-general, Arthur
Dunkel, who chaired the negotiations at officials’ level. It was put on the table in Geneva in December 1991. The
text fulfilled every part of the Punta del Este mandate, with one exception — it did not contain the participating
countries’ lists of commitments for cutting import duties and opening their services markets. The draft became the
basis for the final agreement.
Over the following two years, the negotiations lurched between impending failure, to predictions of
imminent success. Several deadlines came and went. New points of major conflict emerged to join agriculture:
services, market access, anti-dumping rules, and the proposed creation of a new institution. Differences between
the United States and European Union became central to hopes for a final, successful conclusion.
In November 1992, the US and EU settled most of their differences on agriculture in a deal known
informally as the “Blair House accord”. By July 1993 the “Quad” (US, EU, Japan and Canada) announced
significant progress in negotiations on tariffs and related subjects (“market access”). It took until 15 December
1993 for every issue to be finally resolved and for negotiations on market access for goods and services to be
concluded (although some final touches were completed in talks on market access a few weeks later). On 15 April
1994, the deal was signed by ministers from most of the 123 participating governments at a meeting in Marrakesh,
Morocco.
The delay had some merits. It allowed some negotiations to progress further than would have been possible
in 1990: for example some aspects of services and intellectual property, and the creation of the WTO itself. But
the task had been immense, and negotiation-fatigue was felt in trade bureaucracies around the world. The difficulty
of reaching agreement on a complete package containing almost the entire range of current trade issues led some
to conclude that a negotiation on this scale would never again be possible. Yet, the Uruguay Round agreements
contain timetables for new negotiations on a number of topics. And by 1996, some countries were openly calling
for a new round early in the next century. The response was mixed; but the Marrakesh agreement did already
include commitments to reopen negotiations on agriculture and services at the turn of the century. These began in
early 2000 and were incorporated into the Doha Development Agenda in late 2001.

The post-Uruguay Round built-in agenda

Many of the Uruguay Round agreements set timetables for future work. Part of this “built-in agenda” started almost
immediately. In some areas, it included new or further negotiations. In other areas, it included assessments or
reviews of the situation at specified times. Some negotiations were quickly completed, notably in basic
telecommunications, financial services. (Member governments also swiftly agreed a deal for freer trade in
information technology products, an issue outside the “builtin agenda”.) The agenda originally built into the
Uruguay Round agreements has seen additions and modifications. A number of items are now part of the Doha
Agenda, some of them updated. There were well over 30 items in the original built-in agenda. This is a selection
of highlights:
1996
• Maritime services: market access negotiations to end (30 June 1996, suspended to 2000, now part of Doha
Development Agenda)
• Services and environment: deadline for working party report (ministerial conference,
December 1996)
• Government procurement of services: negotiations start
1997
• Basic telecoms: negotiations end (15 February)
• Financial services: negotiations end (30 December)
• Intellectual property, creating a multilateral system of notification and registration of geographical indications
for wines: negotiations start, now part of Doha Development Agenda
1998
• Textiles and clothing: new phase begins 1 January
• Services (emergency safeguards): results of negotiations on emergency safeguards
to take effect (by 1 January 1998, deadline now March 2004)
• Rules of origin: Work programme on harmonization of rules of origin to be completed (20 July 1998)
• Government procurement: further negotiations start, for improving rules and
procedures (by end of 1998)
• Dispute settlement: full review of rules and procedures (to start by end of 1998)
1999
• Intellectual property: certain exceptions to patentability and protection of plant
varieties: review starts
2000
• Agriculture: negotiations start, now part of Doha Development Agenda
• Services: new round of negotiations start, now part of Doha Development Agenda
• Tariff bindings: review of definition of “principle supplier” having negotiating
rights under GATT Art 28 on modifying bindings
• Intellectual property: first of two-yearly reviews of the implementation of the agreement
2002
• Textiles and clothing: new phase begins 1 January
2005
• Textiles and clothing: full integration into GATT and agreement expires 1 January

Most-favoured-nation (MFN):
Treating other people equally Favour one, favour all. MFN means treating one’s trading partners equally
on the principle of non-discrimination. Under GATS, if a country allows foreign competition in a sector, equal
opportunities in that sector should be given to service providers from all other WTO members. (This applies even
if the country has made no specific commitment to provide foreign companies access to its markets under the
WTO). 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. This principle is known as most-favoured-nation (MFN) treatment. It is so important
that it is the first article of the General Agreement on Tariffs and Trade (GATT), which governs trade in goods.
MFN is also a priority in the General Agreement on Trade in Services (GATS) (Article 2) and the Agreement on
Trade- Related Aspects of Intellectual Property Rights (TRIPS) (Article 4), although in each agreement the
principle is handled slightly differently. Together, those three agreements cover all three main areas of trade
handled by the WTO.
MFN applies to all services, but some exceptions are allowed. For example, countries within a region can
set up a free-trade agreement that does not apply to goods from outside the group. Or a country can raise barriers
against products from specific countries that are considered to be traded unfairly. And in services, countries are
allowed, in limited circumstances, to discriminate. But the agreements only permit these exceptions under strict
conditions. When GATS came into force, a number of countries already had preferential agreements in services
that they had signed with trading partners, either bilaterally or in small groups. WTO members felt it was necessary
to maintain these preferences temporarily. They gave themselves the right to continue giving more favourable
treatment to particular countries in particular services activities by listing “MFN exemptions” alongside their first
sets of commitments. 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.

Why ‘most-favoured’?

This sounds like a contradiction. It suggests special treatment, but in the WTO it actually means non-
discrimination -treating virtually everyone equally. This is what happens. Each member treats all the other
members equally as “most favoured” trading partners. If a country improves the benefits that it gives to one trading
partner, it has to give the same “best” treatment to all the other WTO members so that they all remain “most
favoured”. Most-favoured nation (MFN) status did not always mean equal treatment. The first bilateral MFN
treaties set up exclusive clubs among a country’s “most-favoured” trading partners. Under GATT and now the
WTO, the MFN club is no longer exclusive. The MFN principle ensures that each country treats its over-140 fellow
members equally. But there are some exceptions....
The Quad, the Quint, the Six and ‘not
Some of the most difficult negotiations have needed an initial breakthrough in talks among four to six “major”
members. Once upon a time, there was the “Quadrilaterals” or the “Quad”:
• Canada
• European Union
• Japan
• United States
Since the turn of the century and the launch of the Doha Round, developing countries’ voices have increased
considerably, bringing in Brazil and India — and Australia as a representative of the Cairns Group. Japan remains
in the picture not only in its own right, but also as a member of the G-10 group in agriculture. Since 2005, four,
five or six of the following have got together to try to break deadlocks, particularly in agriculture:
• Australia
• Brazil
• European Union
• India
• Japan
• United States
They have been called “the new Quad“, the “Four/Five Interested Parties” (FIPS), the “Quint” and the “G-6.” The
Doha Round was suspended in July 2006 because the six could not agree. Afterwards an alternative group of six,
sometimes called the “non-G-6” or the “Oslo Group” tried their hand at compromise, sometimes listed in reverse
order to emphasise their “alternative” nature — Norway, New Zealand, Kenya, Indonesia, Chile, Canada.

Case Study

(1) The Cleaner Case

Case:
On 23 January 1995, Venezuela and April 1996 Brazil complained to the Dispute Settlement Body that the
United States was applying rules that discriminated against gasoline imports.
The case arose because the United States applied stricter rules on the chemical characteristics of imported
gasoline than it did for domestically-refined gasoline. Venezuela (and later Brazil) said this was unfair because US
gasoline did not have to meet the same standards — it violated the “national treatment” principle and could not be
justified under exceptions to normal WTO rules for health and environmental conservation measures.
Results:
The United States agreed with Venezuela that it would amend its regulations within 15 months and on 26
August 1997 it reported to the Dispute Settlement Body that a new regulation had been signed on 19 August.

(2) The Shrimp Turtle case

Case:
This was a case brought by India, Malaysia, Pakistan and Thailand against the US. They challenged provision
of the U.S. Endangered Species Act forbidding the sale in the U.S. of shrimp caught in ways that kill endangered
sea turtles. The appellate and panel reports were adopted on 6 November 1998. The official title is “United States
— Import Prohibition of Certain Shrimp and Shrimp Products”, the official WTO case numbers are 58 and 61.
Result:
In 1998, a WTO appellate panel decided that while the U.S. is allowed to protect turtles, the specific way the U.S.
tried to do so was not allowed under WTO rules. The U.S. government is now considering ways to change the law
to comply with WTO.
Implication:
It is possible to catch shrimp without harming turtles by fitting shrimp nets with inexpensive “turtle excluder
devices.” U.S. law requires domestic and foreign shrimp fishermen to use turtle-safe methods. The goal of saving
turtles could be undercut by the WTO’s second-guessing of how U.S. policy should be implemented, given the
most inexpensive, effective means has been ruled WTO-illegal.

(3) The Beef Hormone case

Case:
The U.S. challenged a European Union ban on the sale of beef from cattle that have been raised with certain
artificial growth hormones.

Results:
In 1998, a WTO appellate panel ruled against the EU law, giving the EU until May 13, 1999 to open its markets
to hormone-treated beef.

Implications:
The ban on artificial hormones applies equally to European farmers and foreign producers. If European consumers
and governments are opposed to the use of artificial hormones and are concerned about potential health risks or
want to promote more natural farming methods, they should have the right to enact laws that support their choices.
Instead, the WTO empowers its tribunals to second-guess whether health and environmental rules have a “valid”
scientific basis.
(4) The Caribbean Banana case

Case:
The U.S. argued that European trade preferences for bananas from former European colonies in the Caribbean
unfairly discriminate against bananas grown by U.S. companies in Central America.
Result: In 1997, a WTO panel decided that European preferences for Caribbean bananas are WTO-illegal. The
EU proposed a new policy that the U.S. claims still violates WTO rules. The U.S. was granted authority by the
WTO to impose $200 million in trade sanctions against European imports until the EU changes the policy to suit
WTO demands.
Implication: The Caribbean’s tiny share of the EU market for bananas is the major source of revenue and jobs in
some Caribbean nations where mountainous terrain rules out other crops. If Europe abandons its policy to comply
with the WTO, some 200,000 small farmers in very poor countries could lose their livelihoods. Officials in small
Caribbean nations worry that implementation of the WTO ruling will destabilize their economies and democracies.
The U.S. drug czar noted that the policy change could make these countries more vulnerable to drug trafficking.

The GATT years: from Havana to Marrakesh

The WTO’s creation on 1 January 1995 marked the biggest reform of international trade since after the
Second World War. It also brought to reality — in an updated form — the failed attempt in 1948 to create an
International Trade Organization. Much of the history of those 47 years was written in Geneva. But it also traces
a journey that spanned the continents, from that hesitant start in 1948 in Havana (Cuba), via Annecy (France),
Torquay (UK), Tokyo (Japan), Punta del Este (Uruguay), Montreal (Canada), Brussels (Belgium) and finally to
Marrakesh (Morocco) in 1994. During that period, the trading system came under GATT, salvaged from the
aborted attempt to create the ITO. GATT helped establish a strong and prosperous multilateral trading system that
became more and more liberal through rounds of trade negotiations. But by the 1980s the system needed a thorough
overhaul. This led to the Uruguay Round, and ultimately to the WTO.

The GATT trade rounds

Year Place/Name Subjects Covered Countries
1947 Geneva Tariffs 23
1949 Annecy Tariffs 13
1951 Torquay Tariffs 38
1956 Geneva Tariffs 26
1960-61 Geneva (Dillon Tariffs 26
Round)
1964-67 Geneva (Kennedy Tariffs and anti-dumping measures agreements 62
Round)
197379 Geneva (Tokyo Tariffs non-tariff measures, rules, services, intellectual 102
Round) property,
 1986-94 Geneva (Uruguay Tariffs non-tariff measures, rules, services, intellectual 123
Round) property, dispute settlement, textiles, agriculture, creation of
WTO, etc

Did GATT succeed?

GATT was provisional with a limited field of action, but its success over 47 years in promoting and securing
the liberalization of much of world trade is incontestable. Continual reductions in tariffs alone helped spur very
high rates of world trade growth during the 1950s and 1960s — around 8% a year on average. And the momentum
of trade liberalization helped ensure that trade growth consistently out-paced production growth throughout the
GATT era, a measure of countries’ increasing ability to trade with each other and to reap the benefits of trade. The
rush of new members during the Uruguay Round demonstrated that the multilateral trading system was recognized
as an anchor for development and an instrument of economic and trade reform. But all was not well. As time
passed new problems arose. The Tokyo Round in the 1970s was an attempt to tackle some of these but its
achievements were limited. This was a sign of difficult times to come. GATT’s success in reducing tariffs to such
a low level, combined with a series of economic recessions in the 1970s and early 1980s, drove governments to
devise other forms of protection for sectors facing increased foreign competition. High rates of unemployment and
constant factory closures led governments in Western Europe and North America to seek bilateral market-sharing
arrangements with competitors and to embark on a subsidies race to maintain their holds on agricultural trade.
Both these changes undermined GATT’s credibility and effectiveness. The problem was not just a deteriorating
trade policy environment. By the early 1980s the General Agreement was clearly no longer as relevant to the
realities of world trade as it had been in the 1940s. For a start, world trade had become far more complex and
important than 40 years before: the globalization of the world economy was underway, trade in services — not
covered by GATT rules — was of major interest to more and more countries, and international investment had
expanded. The expansion of services trade was also closely tied to further increases in world merchandise trade.
In other respects, GATT had been found wanting. For instance, in agriculture, loopholes in the multilateral system
were heavily exploited, and efforts at liberalizing agricultural trade met with little success. In the textiles and
clothing sector, an exception to GATT’s normal disciplines was negotiated in the 1960s and early 1970s, leading
to the Multifibre Arrangement. Even GATT’s institutional structure and its dispute settlement system were causing
concern. These and other factors convinced GATT members that a new effort to reinforce and extend the
multilateral system should be attempted. That effort resulted in the Uruguay Round, the Marrakesh Declaration,
and the creation of the WTO.

Criticism Against GATT

(1) Lesser trade liberalisation in case of agricultural products

(2) Imposition of non-tariff barriers by the developed countries
(3) The Violation of the ‘Most Favoured Nation’ principle
(4) Misuse of the ‘safeguard rules’ of the GATT
(5) Lack of executive power

Difference between GATT and WTO

The WTO replaces the GATT but it is not a simple extension of GATT. On the contrary, it possesses a different
character. The major differences between the GATT and WTO are as follows:
GATT WTO
1. It had no legal status. It was a set of rules, a It has a legal status and it is a permanent institution with
multilateral agreement, with no institutional its own secretariat. The WTO has been created by an
foundation. international treaty which is ratified by the
Governments and legislatures of the member states.

2. In case of the GATT, there were separate WTO negotiations are permanent in nature, and they are
agreements on separate issues which were not binding upon all the member countries.
binding upon all the members.
 3. The GATT rules were applied only in case of trade The WTO, however, covers not only the trade in goods
in goods. and services, but also trade-related aspects of
intellectual property rights and trade-related investment
measures.

4. The dispute settlement mechanism of the GATT The dispute settlement mechanism of the WTO is much
was very slow in nature and not binding upon the faster and binding upon the concerned member nations.
concerned member nations. The implementation of WTO dispute findings will also
be more easily assured.

5. The members of the GATT met at long intervals The officials meet regularly at short intervals to discuss
to discuss and solve the trade-related problems of over several issues related to international trade. Here,
the world economy. It took a long time to arrive at decisions are taken within a given time period set by the
any decision after each ‘round’ of negotiations. WTO.

6. It was a multi-lateral instrument, by the 1980s, The agreements which constitute the WTO are almost
many new agreements had been added of a all multilateral and thus, involve commitments for the
plurilateral, and therefore, selective nature. entire membership.

7. Under the GATT there was flexibility for In contrast, to the GATT, the WTO agreement is a
countries to ‘optout’ of new disciplines, and in ‘single undertaking’ all its provisions apply to all
practice many developing countries did not sign members.
specific agreements on issues such as customs
valuation or subsidies.

Trading Blocks

A block means groups. Trading blocks means grouping of countries. It means a group of nations united for some
common actions. Trading block is a voluntary grouping of countries of a specific region for common benefit.

It indicates regional economic integration of nations for mutual benefits. In general terms, regional trade blocks
are associations of nations to promote trade within the block and defend its members against global competition.

Trading blocks are highly organised and based on shared interest to promote economic and social interest of the
member countries.

There are different types of trading blocks such as Free Trade Area, Customs union, Economic Union, custom
union, political union, common market etc. trading blocks leads to greater international bargaining power,
increased competition between members, rapid spread of technology etc. Lowering trade barriers is one of the
most obvious means of encouraging trade.

Objectives of Trading Blocks:

i. To remove trade restrictions among member nations.

ii. To improve social, political, economic and cultural relations among member nations.

iii. To encourage free transfer of resources.

iv. To establish collective bargaining.

v. To promote economic growth.

i. SAARC:

It stands for South Asian Association for Regional Cooperation. SAARC is an economic integration of South Asian
countries for regional cooperation. It was established on 8th December 1985.

It consists of nations of South Asia that includes Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and
Srilanka. SAARC focus on areas such as Science and Technology, agricultural and rural development, tele-
communication, postal services etc.

SAARC members signed an agreement called SAPTA (South Asian Preferential Trade Agreement). This
agreement was signed to provide a framework for the exchange of trade concessions.

It aims at accelerating the process of economic and social development in member states. Afghanistan became the
eighth member of this group in 2007.

ii. OPEC: Oil and Petroleum exporting countries:

Opec is an organisation consisting of world's oil and petroleum exporting countries. The Organization of the
Petroleum Exporting Countries (OPEC) was created in 1960 to unify and protect the interests of oil-producing
countries. OPEC has maintained its headquarters in Vienna since 1965.

The original members of OPEC included Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. OPEC has since
expanded to include seven more countries (Algeria, Angola, Indonesia, Libya, Nigeria, Qatar, and United Arab
Emirates) making a total membership of 12.

The main objective of this block is to unify and coordinate member countries petroleum policies and to provide
them with technical and economic aid. There has been a continuous increase in India's share of export to opec
countries.

iii. EU- European Union:

European Union is considered as one of the powerful trading bloc in the world. It was brought into existence in 1st
January 1958 by the treaty of Rome. France, Western Germany, Italy, Belgium, Netherland and Luxemburg were
the founder members of European Union. Initially it was known as European Economic Community (EEC).

It has a common currency called 'EURO'. It also offers tremendous trade opportunities for non-European firms. At
present there are twenty seven members in this block that includes: Austria, Belgium, Bulgaria, Cyprus, the Czech
Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania,
Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the
United Kingdom.

iv. NAFTA:

North American Free Trade Agreement the North American Free Trade Agreement or NAFTA is an agreement
signed by the governments of the United States, Canada, and Mexico creating a trilateral trade block in North
America.

The agreement came into force on January 1, 1994 NAFTA is the most powerful trading blocs in the world. USA,
Canada, Mexico are the members of NAFTA. The objective of NAFTA is to reduce barriers on the flow of goods,
services and people among member nations, protection to investment in member countries etc. European Union
and NAFTA accounts for over fifty percent of the world trade.
Mega-trading blocks: Where does India stand?

Emerging multilateral trading agreements, resulting in mega-trading blocks, seem to be replacing global
negotiations through the WTO. In this article, Sharmila Kantha assesses the potential impact of these trading
agreements on India, and contends that Indian policymakers and businesses would need to factor them into their
future plans.

An interesting transformation is taking place in the global trading environment with the emergence of mega-trading
blocks – multilateral trading agreements involving significant proportions of global trade - which can change the
way trade is conducted in the world. These huge trading blocks are coming up in parallel with the World Trade
Organization (WTO) Doha Development Round, aimed at lowering trade barriers and assisting developing
economies to leverage trade for development. However, given the divergent stance of nations depending on their
development levels and domestic compulsions, international negotiations on the WTO platform have been
protracted.

Emerging mega-trading blocks

The Transatlantic Trade and Investment Partnership (TTIP) brings together two large trading entities of the world,
the US and the European Union (EU), to negotiate an agreement on eliminating tariffs and lowering non-tariff
barriers to trade and investment. The negotiations commenced in July 2013 and seven rounds of discussions have
been held till September 2014. The two sides together constitute about half of the world’s Gross Domestic Product
(GDP) and 30% of world trade in goods and services. The US and the EU view this trade treaty as a way to kick-
start their vulnerable economies and add about 2 million jobs.

The Trans Pacific Partnership (TPP) negotiations, initiated in 2010, are being conducted among 12 countries on
both sides of the Pacific. On one side of the Pacific are Australia, Brunei Darussalam, Japan, Malaysia, New
Zealand, Singapore and Vietnam; on the other side are Canada, Chile, Mexico, Peru and the US. A fast-track
negotiation process aims at completing the treaty this year. These countries account for around 38% of the world’s
GDP and 25% of global trade.

The third potential trading bloc is the Regional Comprehensive Economic Partnership (RCEP) comprising the
Association of Southeast Asian Nations (ASEAN) plus Australia, China, India, Japan, Korea and New Zealand -
involving 45% of the world population and a third of world GDP, and including two of the three largest economies
in the world. Launched in November 2012, it is proposed to be concluded by 2015, but would probably be delayed.
Potential implications for India
Although India is not included in the first two mega-trading blocs above, all of these will significantly impact India.
While India has signed multiple free trade and economic partnership agreements, its track record in aligning its
supply chains to these treaties has not been outstanding. In fact, in some cases, imports into India have increased
faster than its exports. Moreover, the secondary reasons for the trade agreements – incentivising domestic
economic reforms and furthering globalisation - have not been achieved as expected. So what should India look at
vis-à-vis the mega trade blocs?
First, the rationale for these new trading blocs appears to be two-fold. To begin with, they seem to have been
envisaged not as much for trade as for strategic purposes - for example, to strengthen the presence of US in Asia.
Secondly, these trade negotiation platforms appear to replace the global trade negotiation platform - WTO, which
is widely expected to involve significant delay or not adequately meet aspirations.

However, we are seeing a new format in trading rules under the TPP and TTIP, which also include rules on
investment. These are now going beyond tariffs to encompass non-tariff issues such as environmental sustainability,
technical standards, public procurement rules, labour standards, intellectual property etc. In some way, these are
luxuries that are affordable by larger and more developed trading nations, but place a compliance burden on
emerging economies such as India.

One, for India, trade diversion arising from the implementation of these mega-trading blocks may be considerable.
It is likely that trade would shift to members of the trading blocks and exclude non-members. The TPP in particular
includes several of India’s proximate neighbours such as ASEAN members. The TTIP, on the other hand, may
encourage India’s top trading partners – US and EU - to look elsewhere for markets and sources of goods.
Two, there will be an impact of increased trade regulations that India, at this stage of development may not be able
to comply with, given the large investments required. An elevated level of environmental and labour standards in
the mega-trading blocks could pose a challenge for global trade overall. Consumer preferences in the US and EU
– India’s major markets - could shift towards the new regulations.

Three, the investment component in these mega blocks may also divert some funds that may have otherwise come
to India.

However, the impact of these developments might not be all adverse for India. India as a member of RCEP has the
opportunity to be part of a mega-trading block which is more aligned with its development status. The RCEP
encompasses trade, investment and economic cooperation and involves the most dynamic and fast-growing Asian
economies. If properly handled, this could prove to be a stabilising block for global trade and the Asian region.
India would need to ensure that the concerns of developing nations are met in the RCEP negotiations.

Secondly, India has a number of Free Trade Agreements (FTA) and economic cooperation agreements in place
already and is working on several more. For example, our economic cooperation treaties with Japan, Malaysia and
Singapore are showing results and will ensure that these countries would remain high on our trade and investment
radar. Similarly, the ASEAN-India FTA is being upgraded to include investments and trade in services. Australia
and New Zealand are working with India on FTA, and are also members of RCEP. Hence, the potential negative
impact on India may be moderated through these agreements.

Third, India is a huge market for global goods and services and is likely to continue growing faster than most other
markets for some time to come. It would be difficult for our trading partners to shift economic and commercial
strategies away from India. In fact, given the investment opportunities arising across manufacturing, services and
infrastructure, India would need to be included in the business strategies of multinational firms.

What India should do

At the same time, Indian policymakers and businesses would need to factor in the mega-trading blocks into their
future plans. For example, Indian companies would need to greatly raise their cost efficiency and productivity
parameters through firm-level processes in quality management in order to enhance competitiveness on the global
stage.

A facilitative policy regime would be crucial to this endeavour. The new government must accelerate improvement
in the climate for doing business with policies such as the Goods and Services Tax (GST), transparent resource
allocation (for example, of resources like coal and land), efficient administrative procedures, and faster clearances,
among others. The idea should be to infuse competitiveness into the system and minimise transaction costs.
Bridging the infrastructure gap would be crucial to this effort.

Another critical policy would be to ensure that sufficient information is provided to Indian industry on emerging
trade matters. Opportunities arising from these issues as well as changing standards and regulations need to be
properly communicated to manufacturers and exporters so that they can institute response mechanisms well in
time.

At the strategic level, the Indian government must examine how to reconfigure the mega-trading blocks to its
advantage. One way of doing this is to continue exerting pressure on WTO to complete the Doha Development
Round. In July 2014, India played a prominent role in raising the issue of permitted levels of public stockholdings
of food grains due to which an agreement on trade facilitation (arrived at during the Bali Ministerial Meeting in
December 2013) could not make progress. India should make an effort to arrive at a resolution to the current
impasse.

Another way could be to work with other countries on moderating some of the norms pertaining to compliance
and standards or, alternatively, seeking expertise and aid to meet such norms. The government should also work
towards strengthening the export marketing effort in partnership with Indian industry.
Way forward
Isolating India from the mega-trading blocks is not an option since these are realities that we must deal with or
lose out in the process. Indian industry would need to understand the potential non-tariff regulations and strategise
to meet the requirements as more and more such barriers evolve.

India enjoys friendly relations with all countries and has been able to put forward its perspectives on the global
platform to great effect. The mega-trading blocks would therefore be expected to keep in mind the concerns of a
large emerging economy like India, and the impact of trade reformatting on developing nations as a whole.