6 – World Trade Organization (WTO)

Introduction

According to our assessment of Smith, Ricardo, and Heckscher-classical Ohlin’s trade theories, in a world without trade barriers, trade patterns are governed by the relative productivity of different means of production in different countries. Countries will specialise in products that are the most efficient to manufacture while importing less efficient products.

This unit examines the political realities of international trade. The political fact is that while many countries claim to support free trade, they frequently meddle in global trade to defend the interests of politically powerful groups.

This unit will examine the political and economic reasons why countries intervene in international commerce. When governments intervene, they frequently limit imports of goods and services into their country while enacting laws encouraging exports. Typically, their policies are designed to protect home businesses and jobs from international competition while expanding the overseas market for domestic companies’ products.

6.1 World Trade Organization (WTO)

Most trading nations have signed and had their parliaments confirm WTO agreements. The World Trade Organization is responsible for negotiating and carrying out new trade agreements and overseeing member countries’ adherence to all WTO agreements. Most of the WTO’s present work stems from the Uruguay Round talks, which took place between 1986 and 1994, and earlier negotiations under the GATT. The organisation is now hosting fresh negotiations as part of the Doha Development Agenda (DDA), initiated in 2001.

A Ministerial Conference that meets every two years, a General Council that implements the conference’s policy decisions and is in charge of day-to-day administration, and a director-general that the Ministerial Conference chooses are all responsible for running the World Trade Organization. The World Trade Organization’s headquarters are in Geneva, Switzerland.

6.1.1 Mission, Purpose, and Principles

The WTO’s mission, functions, and principles are as follows:

Mission

The WTO’s stated purpose is to increase the welfare of its member countries’ peoples, notably through eliminating trade barriers and providing a venue for trade negotiations. Its primary goal is to “guarantee that trade flows as easily, predictably, and freely as possible.” This primary objective is further defined by specific core functions that serve and protect five essential principles that form the cornerstone of the multilateral trading system.

Functions

Analysts consider the following to be the most essential of the WTO’s functions:

• It oversees the implementation, administration, and operation of the covered agreements.
• It serves as a platform for discussion and dispute resolution.

Furthermore, the WTO is responsible for examining national trade policies and promoting trade policy consistency and transparency through surveillance in global economic policy-making. Another WTO objective is to assist developing, least-developed, and low-income countries in transitioning to WTO rules and disciplines through technical cooperation and training. The WTO is also a centre for economic research and analysis, publishing regular assessments of the global trade picture in its yearly publications and research studies on specific themes. Finally, the WTO works closely with the two major Bretton Woods institutions, the IMF and the World Bank.

The Trading System’s Principles

It is focused on establishing the ground rules for trade policy games. Five ideas are crucial to comprehending both the pre-1994 GATT and the WTO:

1. Non-discrimination:

Non-discrimination comprises two primary components: the Most Favoured Nation (MFN) rule and the national treatment policy. Both are incorporated into the major WTO rules on goods, services, and intellectual property, but their precise scope and nature vary across these categories. The MFN rule requires a WTO member to apply the same conditions to all trade with other WTO members, i.e., a WTO member must offer all other WTO members the most favourable conditions under which it allows trade in a particular product type. “Give someone a special favour, and you must reciprocate for all other WTO members.” National treatment requires that imported and locally produced goods be treated similarly (at least after the foreign goods have entered the market) and was implemented to address non-tariff trade barriers (e.g., technical standards, security standards, et al., discriminating against imported goods).

2. Reciprocity:

It represents a desire to limit the breadth of free-riding that may occur due to the MFN norm and a desire to gain better access to foreign markets. A related point is that for a country to negotiate, the reward must be greater than the gain from unilateral liberalisation; reciprocal concessions aim to ensure such gains happen.

3. Binding and enforceable commitments:

A concession schedule (list) contains information on the tariff commitments of WTO members during multilateral trade negotiations and upon accession. These schedules set “ceiling bindings”: a country can adjust its bindings after negotiating with its trading partners, which may include paying them for trade losses. The complaining country may use WTO dispute resolution procedures if satisfaction is not provided.

4. Transparency:

WTO members are obligated to disclose their trade regulations, maintain institutions that allow for the scrutiny of administrative decisions affecting trade, respond to information requests from other members, and notify the WTO of changes in trade policy. The Trade Policy Review Mechanism’s (TPRM) periodic country-specific reports (trade policy reviews) strengthen and facilitate these internal transparency requirements. The WTO system also aims to increase predictability and stability by prohibiting quotas and other measures to limit import amounts.

5. Safety valves:

Governments can impose trade restrictions in certain instances. There are three types of rules in this direction: those that allow trade measures to achieve non-economic goals, those that attempt to ensure “fair competition,” and those that allow trade intervention for economic purposes.

6.1.2 Formal Organization

All WTO members can participate in all WTO councils and committees except the Appellate Body, Dispute Settlement Panels, and Plurilateral Committees.

First Level: Ministerial Conference 

The WTO’s highest decision-making body is the Ministerial Conference, which must meet at least every two years. It brings together all WTO members, who are either countries or different customs territories. The Ministerial Conference has the authority to decide on all issues arising from multilateral trade agreements.

Second Level: The General Council 

The General Council, the Dispute Settlement Body, and the Trade Policy Review Body are in charge of the ministerial conference’s day-to-day operations. All three are made up of the same people—representatives from all WTO members—but they operate under distinct regulations.

1. The WTO’s highest-level decision-making body, the General Council, meets regularly in Geneva to carry out the WTO’s functions. It has representatives (typically ambassadors or equivalent) from all member countries and the capacity to act on behalf of the ministerial conference, which only meets every two years. The Council represents the Ministerial Council in all WTO matters.
2. The Dispute Settlement Body comprises all member states, often represented by ambassadors or equivalents.
3. The WTO General Council convenes as the Trade Policy Review Body (TPRB) to conduct trade policy evaluations of TRPM members. As a result, the TPRB is open to all WTO members.

Third Level: Trade Councils

The Trade Councils report to the General Council. There are three councils: the Council for Trade in Goods, the Council for Trade-Related Aspects of Intellectual Property Rights, and the Council for Trade in Services, each working in a distinct area. In addition to these three councils, six more bodies report to the General Council on topics such as trade and development, the environment, regional trading arrangements, and administrative matters.

1. Council for Goods Trade: The Council for Trade in Products operates the General Agreement on Tariffs and Trade (GATT), which governs international trade. It is composed of representatives from every WTO member country.
2. Council on Trade-Related Aspects of Intellectual Property Rights: Information on intellectual property in the World Trade Organization, news and official records of the TRIPS Council’s activities, and details of the WTO’s collaboration with other international organisations.
3. Council for Trade in Services: The Council for Trade in Services acts under the General Council’s direction and oversees the General Agreement on Trade in Services (GATS) operation. It is open to all WTO members and has the authority to establish subsidiary bodies if needed.

Fourth level: Subsidiary Bodies 

Each of the three councils has a subsidiary body.

1. The Goods Council is a subsidiary of the Council for Trade in Goods. It comprises 11 committees from all member countries that address various issues like agriculture, market access, subsidies, anti-dumping measures, etc. The following are members of the committees:

• Committee on Information Technology Agreements (ITA)
• State-Owned Commercial Enterprises
• The Textiles Monitoring Body consists of a chairperson and ten members who operate on his behalf.
• Notification groups are the mechanisms through which governments inform the WTO of new policies and actions in their nations.

2. Services Council: A subcommittee of the Council for Trade in Services that deals with financial services, domestic laws, and other special responsibilities.

3. Dispute Settlement Panels and Appellate Body: A subsidiary under the Dispute Settlement Body to resolve disputes and the Appellate Body to handle appeals.

Other committees include:

• Committees on:
  • Trade and Environment
  • Commerce and Development (Subcommittee on Least-Developed Countries)
  • Regional Trade Treaties
  • Restrictions on the Balance of Payments
  • Finance, Budget, and Administration
• Working groups on:
  • Accession
• Trade, debt, and finance working groups
  • Trade and technology exchange

The WTO is based on a one-country, one-vote structure, yet no votes have ever been cast. Consensus often makes decisions, and the fundamental source of bargaining power is relative market size. Consensus decision-making has the advantage of encouraging efforts to identify the most broadly acceptable decision. The main disadvantages include the lengthy time constraints, numerous rounds of discussion required to reach a majority conclusion, and the tendency for final accords to use vague language on disputed issues, making future interpretations of treaties problematic.

In practice, WTO discussions are conducted through informal agreements between small group countries rather than by consensus of all members. Such talks are commonly referred to as “Green Room” talks (after the colour of the WTO Director-Office General’s in Geneva), or “Mini-Ministerials” when they take place in other nations. Many of the WTO’s developing nation members, frequently excluded from the negotiations, have consistently challenged these methods. According to Richard Steinberg (2002), while the WTO’s consensus governance model provides for law-based starting negotiation, trading rounds are closed through power-based bargaining that favours Europe and the United States and may not improve Pareto.

6.1.3 Dispute Resolution

Prompt compliance with DSB recommendations or judgements is critical to ensuring adequate dispute settlement for the benefit of all members. — Article 21.1 of the DSU of the World Trade Organization

WTO members agreed in 1994 on the Understanding of Rules and Procedures Governing the Settlement of Disputes (DSU), which was annexed to the “Final Act” signed in Marrakesh. The WTO regards dispute settlement as a vital component of the multilateral trading system and a “unique contribution to the stability of the global economy.” WTO members have agreed that if they believe their fellow members are breaking trade rules, they will use the multilateral system of resolving disputes rather than adopting unilateral action.

The Length of a Dispute Settlement Procedure

These are target figures for the approximate times for each stage of a dispute resolution procedure.

The agreement is adaptable. Furthermore, the countries can resolve their disagreements at any time.

The totals are likewise approximations.

60 days	Consultations, mediation, etc.
45 days	Panel set up and panellists appointed
6 months	Final panel report to parties
3 weeks	Final panel report to WTO members
60 days	Dispute Settlement Body adopts report (if no appeal)
Total = 1 year (without appeal)
60-90 days	Appeals report
30 days	Dispute Settlement Body adopts appeals report
Total = 1 year 3 months (with appeal)

The DSB panels, the Appellate Body, the WTO Secretariat, arbitrators, independent experts, and several specialised organisations are all involved in the operation of the WTO dispute settlement process. The General Council fulfils its obligations under the DSU through the Dispute Settlement Body (DSB). The DSB, like the General Council, comprises representatives from all WTO members. The DSB is in charge of managing the DSU, which includes overseeing the entire dispute resolution procedure. A member state may ask for consultations with another member state if it thinks that a measure that the member state has implemented has denied it a benefit under one of the covered agreements. If consultations do not settle the disagreement within 60 days of receiving the consultation request, the complaining state may request the formation of a panel. Unless the DSB determines differently by consensus, the respondent state cannot prohibit or delay the formation of a panel. The panel, which is generally composed of three members appointed on an ad hoc basis by the Secretariat, meets to receive written and oral submissions from the parties, based on which it is intended to develop findings and conclusions for presentation to the DSB. Even when private parties are directly involved, they are not entitled to attend or make submissions distinct from the state’s.

The final version of the panel’s report is sent to the parties and then to all WTO members two weeks later. The report must be accepted in a DSB meeting within 60 days of its distribution unless the DSB unanimously agrees not to adopt the report or a party to the dispute notifies the DSB of its intention to appeal. A party may appeal a panel report to a standing Appellate Body, but only on legal problems and the panel’s legal interpretations. Members may voice their views on the Appellate Body’s report. However, they cannot stop it because the DSB must adopt an Appellate Body report, and the parties must unconditionally accept it unless the DSB decides by agreement not to adopt the report within thirty days of its circulation.

The member concerned is to notify the DSB of its plans within thirty days after the report’s adoption; if the member explains that it is impracticable to comply with the recommendations and rulings immediately, it is to be given a “reasonable length of time” to comply. If no agreement is achieved within a reasonable period for compliance, the issue will be resolved through binding arbitration. Suppose there is a disagreement over the satisfactory nature of the respondent state’s measures to comply with the report. In that case, that disagreement is to be decided by a panel, preferably the same panel that heard the original issue but seemingly could not appeal its judgment.

If everything else fails, the DSU provides two additional options:

• If a member fails to carry out the recommendations and rulings within the “reasonable period,” it may negotiate with the complaining state for mutually acceptable compensation.
• If no agreement on compensation is reached within twenty days of the expiry of the “reasonable period,” the prevailing state may request authorization from the DSB to suspend the application of concessions or other obligations under the covered agreements to the member concerned. Unlike previous GATT practice, authorization to suspend concessions in this case is semi-automatic, in that the DSB “must issue the authorization […] within thirty days of the expiry of the reasonable period,” unless it unanimously chooses to reject the request.

According to the DSU, fellow members should pay “particular attention” to the concerns and interests of emerging countries. If one of the parties to a dispute is from a developing nation, that party is entitled to at least one panellist from a developing country. Furthermore, suppose a complaint is filed against a developing nation. The consultation time (before convening a panel) may be extended in that case. If the issue proceeds to a panel, the deadlines for the developing country to submit its arguments may be reduced. Formal complaints against LDCs are discouraged, and if consultations fail, the Director-General and Chairman of the DSB offer their good offices before a formal request for a panel is made. In terms of substance, the DSU states that “special attention” is to be paid to the interests of developing countries and that panel reports must “explicitly indicate” how the “differential and more favourable treatment” provisions of the agreement under which the complaint is brought have been taken into account. An Advisory Center on WTO Law was formed in 2001 to help developing nations overcome their lack of competence in WTO law and assist them in managing complicated trade disputes.

The General Council also serves as the Trade Policy Review and Dispute Resolution bodies.

The Doha Declaration demanded conversations occur in the Trade Negotiations Committee and its offspring. This now encompasses the agricultural and service agreements that began in early 2000. The General Council delegated authority to the TNC.

The General Council appoints new chairpersons for the key WTO organisations each year.

6.1.4 Ministerial Meetings

First Ministerial Meeting

The conference was notable for being the first Ministerial Conference following the founding of the WTO and for registering 22 aspirants for membership.

The emphasis was mainly on evaluating the implementation of WTO obligations. The ministers made an important observation about the International Labour Organization (ILO) being the competent entity to develop and deal with labour standards. The ministers condemned applying labour standards for protectionist objectives and agreed that the comparative advantage of countries, particularly low-wage developing countries, should not be questioned. The importance of fully and faithfully implementing the Textiles and Clothing Agreement stipulations was emphasised (ATC). The Information Technology Agreement was born at the Conference.

Second Ministerial Meeting

In 1998, it was held in Geneva, Switzerland. This conference was unique in that it occurred on the fiftieth anniversary of the GATT’s inception (1947). Congo, Mongolia, Niger, and Panama were among the new WTO members present in Geneva.

The only meaningful outcome of this conference was the acceptance of the Declaration on Global Electronic Conference. The Declaration, adopted on May 20, 1998, emphasised that countries will maintain their current practice of not imposing customs duties on electronic transmissions. The declaration also instructed the General Council to develop a thorough work plan to address all trade-related issues related to the global electronic conference.

Third Ministerial Meeting

The third conference was held in 1999 in Seattle, Washington. This Conference was remarkable in being conducted during stormy times, with protests by non-governmental organisations and groups. During the Conference, an unprecedented situation developed, with enormous demonstrations and police and National Guard crowd control measures attracting worldwide attention.

The following topics and themes were discussed at the conference:

Agriculture Task Force: During the conversations, two points of view formed. One viewpoint advocated for the complete integration of agricultural commerce into the same laws as other products, the abolition of all export subsidies, and significant gains in market access. The opposing viewpoint was that agriculture differed from different sectors and did not support integrating agricultural commerce with other products. Proponents of this perspective opposed the withdrawal of export subsidies. They emphasised the importance of taking into account the several vital societal tasks that fall under the jurisdiction of the agriculture sector.

Working Group on Rules and Implementation: Many developing countries expressed concern and called attention to the following:

1. Difficulties in implementing certain WTO agreements and requested extensions of deadlines in TRIPS, TRIMS, and Customs Valuation; and
2. Imbalance in certain agreements and requested changes in certain anti-dumping, subsidies, and textiles agreement provisions.

Market Access Working Group: The draft declaration on market access (lower import duties, access to service markets, etc.) had unresolved issues, such as the negotiations’ scope, methodology, and how much tariffs on non-agricultural goods should be lowered. It also did not say whether members should lower tariffs on a request-offer basis, like in the Uruguay Round, or whether there should be a common multilateral approach to tariffs. Non-tariff measure: developing nation members’ reservations about a proposal to grant exports from Least Developed Countries (LDCs) ‘ground zero’ tariffs in more affluent countries.

Systemic Issues: Member nations highlighted concerns about document restrictions, improved transparency and decision-making, improved information flows, and the establishment of public understanding and participation in the organization’s operations.

Trade and Labor Standards: On the conference’s final day, a new working group was formed to consider options for establishing a labour standard working group within the WTO or a body administered jointly by some international organisations. Opinions varied, with several poorer countries opposing establishing either form of council.

Fourth Ministerial Conference

Ministers from all 142 member countries attended it in Doha, Qatar, in November 2001.

WTO member nations decided to begin new negotiations at the Fourth Ministerial Conference. They also committed to collaborating on other problems, particularly implementing the current accords. The Doha Development Agenda refers to the full package (DDA). It consists of three primary issues: (i) the negotiating agenda for the new WTO round, (ii) around 40 developing-country implementation problems, and (iii) the political statement on patents and public health.

The Trade Negotiations Committee and its subsidiaries conduct the negotiations, normally either ordinary councils and committees convening in “special sessions” or specifically formed negotiating groupings. Other WTO councils and committees carry out work under the work programme.

Fifth Ministerial Meeting

The ministerial meeting was held in Cancun, Mexico, to agree on the Doha round. The G20 (headed by India, the People’s Republic of China, and Brazil), an alliance of 22 southern governments, resisted efforts from the North for agreements on the so-called “Singapore issues” and advocated for an end to agricultural subsidies within the EU and the US. The talks came to a halt, with no progress made.

The Fifth Ministerial Conference, held in Cancun, Mexico, in September 2003, was planned to be a stock-taking gathering at which members would agree on concluding the remaining negotiations. However, disagreements on agricultural issues, mainly cotton, marred the summit, leading to a deadlock on the “Singapore issues.” Real progress on Singapore’s concerns and agriculture did not become apparent until August 1, 2004, when the General Council issued a series of resolutions (sometimes called the July 2004 package). The intended deadline of January 1, 2005, was missed. Following that, members unofficially planned to complete the negotiations by the end of 2006 but were unsuccessful again. At the Hong Kong Ministerial Conference in December 2005, more progress was achieved in decreasing members’ disagreements. Still, some gaps remained unbridgeable, and Director-General Pascal Lamy stopped the negotiations in July 2006. Efforts then shifted to attempting a breakthrough in early 2007.

Sixth Ministerial Meeting

It was considered critical if the four-year-old Doha Development Agenda negotiations were to progress sufficiently to end the round in 2006. Countries decided at this summit to phase down all agricultural export subsidies by the end of 2013 and to cease all cotton export subsidies by the end of 2006. Further concessions to developing countries included an agreement to implement duty-free, tariff-free access for goods from least developed countries, similar to the European Union’s Everything but Arms policy, with up to 3% of tariff lines exempt. Other key topics were left for further negotiations, expected to be finished by the end of 2006.

6.1.5 Membership and Accession

The procedure for becoming a WTO member is different for each candidate nation, and the conditions of accession depend on the nation’s economic development stage and current trading system. On average, the process takes roughly five years, although it might take longer if the country is not fully committed to the process or if political difficulties interfere. As is customary in WTO proceedings, an offer of admission is made only if all interested parties reach an agreement.

The Process of Accession

A nation that wishes to join the WTO presents an application to the General Council, including all areas of its trade and economic policies that are relevant to WTO accords. The application is given to the WTO as a memorandum, which is reviewed by a working group comprised of all interested WTO members. After gathering the essential background material, the working group focuses on the divergence between WTO rules and the applicant’s international and local trade policies and regulations. The working party establishes the terms and circumstances of the applicant nation’s entry into the WTO. It may propose transitional periods to give countries some latitude in complying with WTO standards. The last admission stage includes bilateral talks between the applicant country and other working party members over tariff concessions and market access for goods and services. Even though they are agreed upon bilaterally, the new member’s pledges must apply equally to all WTO members under standard non-discrimination rules.

When the bilateral talks are finished, the working party submits an accession package to the General Council or Ministerial Conference. The package includes a summary of all working party meetings, the Protocol of Accession (a draft membership treaty), and lists (“schedules”) of the member-to-commitments. Once the General Council or Ministerial Conference has approved the terms of accession, the applicant’s parliament must ratify the Protocol of Accession before it can become a member.

Observers and Members

The World Trade Organization has 151 members (almost 123 nations participating in the Uruguay Round signed on at its foundation, and the rest had to get membership). The European Union’s 27 member states are also known as the European Communities. WTO members are not required to be fully sovereign nations. Instead, they must function as a customs territory with complete authority over their exterior business contacts. As a result, Hong Kong became a GATT contracting party, and Chinese Taipei (Taiwan) joined the World Trade Organization in 2002. Some non-members have served as observers at the WTO (31) and are now discussing membership. Observers, except the Holy See, must begin accession discussions within five years of becoming observers. Several international intergovernmental organisations also award WTO bodies observer status. So far, 15 governments and two territories have had no official interactions with the WTO.

6.1.6 Agreements

The World Trade Organization (WTO) is in charge of overseeing around 60 different agreements that have the status of international legal texts. Member countries must sign and ratify all WTO agreements on accession. A list of WTO agreements is available here. Following is an overview of some of the most notable contracts:

Agriculture Agreement (AoA)

The AoA went into force with the creation of the WTO in early 1995. Domestic assistance, market access, and export subsidies are the three core concepts, or “pillars,” of the AoA.

Domestic Assistance: The AoA’s first pillar is “domestic support.” Domestic assistance (subsidies) are divided into three “box” types by the AoA: green, amber, and blue. The Green Box includes fixed payments to producers for environmental programmes “decoupled” from current production levels. Domestic subsidies that countries have agreed to decrease but not eliminate are included in the Amber Box. Subsidies in the Blue Box can be increased indefinitely if payments are linked to production-limiting programmes.

The AoA’s domestic support system currently allows Europe and the United States to spend $380 billion annually on agriculture subsidies. “It is still frequently stated that subsidies are required to safeguard small farmers; however, according to the World Bank, more than half of EU support goes to 1% of producers, and in the US, 70% of subsidies go to 10% of producers, primarily agri-businesses.” These subsidies flood global markets with low-cost items, lowering prices and undercutting producers in poor nations — a practice known as dumping.

Market Access: The second pillar of the AoA is “market access,” which refers to WTO members lowering tariff (or non-tariff) trade barriers. The 1995 AoA required industrialised countries to reduce tariffs by 36 percent on average, with a minimum per tariff line reduction of 15 percent over five years, and developing countries to reduce tariffs by 24 percent on average, with a minimum per tariff line reduction of 10 percent over nine years.

Least-developed countries (LDCs) were spared from tariff reductions. Still, they were required to either convert non-tariff obstacles to tariffs (a process known as tariffication) or “bind” their tariffs, resulting in a “limit” that could not be raised in the future.

Export Subsidies: The third pillar of the AoA is “export subsidies.” The 1995 AoA requires developed countries to eliminate export subsidies by at least 35% (by value) or 21% (by volume) over a five-year period ending in 2000.

Criticism: The AoA is chastised for eliminating tariff safeguards for small farmers—a vital source of revenue for developing countries—while allowing rich countries to continue paying enormous subsidies to their farmers, which developing countries cannot afford.

The General Agreement on Trade in Services (GATS)

GATS is a set of multilateral standards that govern international service trade. For the first time, the GATS extended internationally agreed rules and commitments to international service trade.

The GATS is divided into two parts: the framework agreement, which contains the general rules and regulations, and the national “schedules,” which outline individual nations’ specific commitments to foreign suppliers’ access to their domestic markets.

Each WTO member lists the services it seeks to guarantee access to international suppliers in its national schedule. Unlike the GATT, which provides countries total discretion to pick which services to commit to opening up, all commitments apply to all other members on a non-discriminatory basis. The schedules and the services committed limit the extent to which foreign service providers can participate in the market.

As required by GATS, further negotiations for progressive liberalisation (mandatory negotiations) began on January 1, 2000.

In Brief: GATS-referenced services are not provided commercially or in rivalry with other suppliers, such as social security programmes and central banking, services in the air transport sector, traffic rights, and other services directly related to the exercise of traffic rights.

Types of Supply: The GATS specifies four modes of service supply:

• Mode 1: Cross-border trade
• Mode 2: Foreign consumption
• Mode 3: Commercial presence
• Mode 4: Natural person presence

General Principles: These are the basic rules that all members must follow for all services.

• MFN Treatment indicates that “each member shall provide instantly and unconditionally to services and service suppliers of any other member treatment no less favourable than that accorded to like services and service suppliers of all other countries.” However, if a member has established an exemption, it is authorised to maintain a measure inconsistent with the general MFN agreement. All exclusions are subject to review and generally do not last more than ten years.
• Transparency: The GATS requires each member to publicise all relevant general application measures that impact the agreement’s operation as soon as possible.

Obligations Specific: These requirements only apply to the following sectors:

• Market Access: The GATS specifies certain measures affecting free market access that should be applied to a service provider or supplier only after specific arrangements are made in the member schedule. The following are some of the market access restrictions:
  • Restrictions on the number of service providers
  • A cap on the overall value of service transactions or assets
  • Restrictions on the overall number of service activities or the total amount of service output
  • Percentage limits and foreign capital involvement, as well as limits on the total value of foreign investment
• National Treatment: If measures affecting service supply are implemented, each member should treat international services and service suppliers no less favourably than its services and suppliers.

Exemptions: In some instances, members may implement or maintain measures that violate their duties under the agreement, such as the MFN requirement or particular pledges. These circumstances include, among other things, steps necessary to protect public morals or maintain public order, protect human, animal, or plant life or health, or ensure compliance with laws or regulations that are not inconsistent with this Agreement.

Irreversible Commitments: Members can permanently liberalise unilaterally without making GATS commitments. However, GATS commitments, like tariff bindings, are not irreversible.

Regional Trading Arrangements: Aside from services granted under specific MFN exemption lists, the only authorised deviation from the most favoured nation treatment under the GATS is between countries that are members of regional trading arrangements. The GATS rules on ‘Economic Integration’ in Article V are modelled after those in GATT Article XXIV (Territorial Application-Frontier Traffic-Customs Unions and Free Trade Areas), though the lack of a services’ equivalent to import duties means that there is no distinction comparable to that between customs unions and free trade areas.

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

The main objective is to protect the owner of an intellectual property right, who may be an individual, a business, or even the people who live in a particular area.

This intellectual property right is known as a “monopoly right,” and it is granted to the inventor (patent on an industrial product), author (copyright on a literary work), the user (trademark of a business establishment) or regions (Geographical Indicators of Origin). Except for Trademarks and Geographical Indications of Origin, which are protected in perpetuity, this right, known as “legal property,” can be claimed for specific pre-determined periods.

TRIPS protection: The agreement covers the following topics:

1. Patents: Patents are granted for inventions that are novel (or new), non-obvious, and have industrial application (commercial use).
   1. Patent Term: A parent patent is valid for 20 years from the filing date.

Examples of patentable inventions include biological inventions, computer hardware and peripherals, computer software, cosmetics, food inventions, machines, mechanical inventions, medical accessories and devices, pharmaceuticals, and musical instruments.

1. Non-patentable inventions include public order or morality; diagnostic, therapeutic, and surgical methods; and plants and animals other than microorganisms.
2. Compulsory Licensing: Compulsory licencing and government use without the right holder’s permission are permitted but are subject to conditions designed to preserve the right holder’s legitimate interests.
3. Scope and Duration: Without the right holder’s permission, the scope and duration of such use must be limited to its authorised purpose.
4. Non-exclusive Licensing
5. The Indian Patents Act: The key features are as follows:
   1. The term of every patient is 20 years from the date of filing.
   2. A new definition of ‘invention’ has been incorporated, meaning a new product or process involving inventive steps capable of industrial application.

• A method or process of testing during the manufacturing process will be patentable.

1. Plant processes are now patentable. However, diagnostic and therapeutic methods are currently regarded as non-patentable. Every patent (excluding those with a secrecy direction) will subsequently be published 18 months after the date of filing/priority and will be open to the public upon payment. As a result, the practice of publishing the filing intimation in the Gazette immediately after filing has been discontinued.
2. A provision for any other interested person (other than the applicant) to file a request for examination has also been established, as has a provision for the applicant to withdraw his or her application at any time before the grant.
3. The time required to complete the application to be accepted has been reduced from 15 to 18 months to 12 months. The following grounds for opposition and revocation have been added to the grounds for opposition and revocation:

• Failure to disclose or incorrectly identify the source of the geographical origin of biological material used for innovation; anticipation based on oral or other knowledge available within a local or indigenous group in India or abroad.

2. Copyright: A copyright prohibits people from reproducing or ‘copying’ any ‘literary, dramatic, or musical work’ without the permission of the owner of that work. This protection extends to cinematograph films, sound recordings, and, more recently, computer programmes. According to the TRIPS Agreement, “copyright protection shall apply to expressions and not to ideas, procedures, methods of operation, or mathematical concepts as such.” Similarly, just as ‘commercial use or utility’ is an essential precondition for granting a patent, ideas must have crystallised as expressions or artistic forms for a patent to be granted. Copyright exists in the following categories of “works”: literary, dramatic, and creative works are all acceptable.
3. Trademarks: A trademark is a visual symbol, such as a word, device, name, letter or numeral, brand, heading, signature, label, or any combination of these, that allows a person to connect a product and the company that sells the product. The company could manufacture goods or provide services. In the latter case, the term ‘service mark’ is used.
4. Indian Act: The Trademarks Act of 1999, which went into effect on September 15, 2003, specifies the grounds for refusing to register a trademark. The reasons could be because of the trademark:
   1. Lacks any distinctive character, making it impossible to identify between goods or services
   2. It is made up entirely of marks or indications that have become common in the current language, resulting in a lack of distinctiveness.
   3. Is of such a nature that it merits public attention or causes confusion
   4. Contains or contains any matter that offends religious sensibilities.
   5. A trademark is solely of the shape of a good; for example, a photo of a mango cannot be a trademark on its own.

There is a provision for trademark infringement under the Trade Marks Act of 1999.

5. Geographical Indications: Geographical indications are places or names that are used to identify the origin, quality, reputation, or other characteristics of a product. Typical examples include “Champagne,” “Tequila,” and “Roquefort.” Countries such as India, on the other hand, would like “Kanjivaram Saree” and possibly “Mysore Dosa” to become standard examples. The TRIPS Agreement defines the level of protection required in two articles. Article 22, which describes a standard level of security, applies to all items. According to this, geographical indications must be protected to avoid misleading the public and unfair competition. Unfortunately, many goods from the developing world do not enjoy the same protections Article 23 offers to wines and spirits.
6. Layout Designs (Topographies) of Integrated Circuits: The IPIC Treaty committed members to protect the layout designs (topographies) of integrated circuits (referred to as “layout designs” in the WTO Agreement).
7. If a person trades in an integrated circuit incorporating an unlawfully reproduced layout design or any article incorporating such an integrated circuit, the person concerned must pay the “holder a sum equivalent to a reasonable royalty such as would be payable under a freely negotiated licence in respect of such a layout design” upon being informed of such an act.

The Indian IC Layout Design Act governs the design of electronic circuits in India.

The Semiconductor Integrated Circuits Layout Design Act of 2000, which got Presidential permission in September 2000, mentions the following, among other things:

“Layout Design” refers to arranging transistors and other circuitry elements in a semiconductor circuit, including lead wires connecting such elements.

You can find transistors and other circuitry parts that are permanently attached to the semiconductor material, insulating material, or inside semiconductor material in a “semiconductor integrated circuit.” These parts are meant to work together to make an electronic circuit.

The Act prohibits the registration of IC layout designs that are:

• Not original or
• Have been commercially exploited anywhere in India or a convention nation, or
• Are not inherently distinctive or
• Are not inherently identifiable from any other registered layout design.

A layout design is registered for ten years from the date of filing an application for registration or from the date of first commercial exploitation anywhere in India or any country, whichever is earlier.

Designs for Industry: A design must meet the following requirements:

• It must be new or original, meaning the design has never been published.
• It must be related to shape features.
• It must be applied to any article through an industrial process.
• It must be appealing to and evaluated solely by the naked eye.

1. According to Article 25 on “Requirements for Protection,” Members shall protect independently generated innovative or original industrial designs.
2. Each member shall ensure that the requirements for obtaining textile design protection, particularly in cost, examination, or publication, do not unreasonably limit the opportunity to seek and obtain such protection.

According to Article 26 on ‘Protection,’ the owner of a protected industrial design has the right to prevent third parties who do not have the owner’s consent from making, selling, or importing articles bearing or embodying a design that is a copy, or substantially a copy, of the protected design when such acts are undertaken for commercial purposes.

The term of available protection must be at least ten years. (The Indian Designs Act of 2000 provides the same ten-year protection.)

The Act Concerning Indian Designs

The Designs Act of 2000 contains India’s current legislation on industrial designs.

The Act mentions, among other things, the following:

• ‘Article’ refers to any manufactured article and any substance, artificial or partly artificial and partly natural, and includes any part of an article made and sold separately.
• ‘Design’ refers to only the features of shape, configuration, pattern, ornament, or composition of lines or colours applied to any article, whether in two-dimensional or three-dimensional or both forms, by any industrial process or means, whether manual, mechanical, or chemical, separate or combined. A design will not be registered if it is not new or original, if it has been disclosed to the public anywhere in India or any other country before the filing date by publication in any tangible form, by use, or in any other way, if it is not significantly distinguishable from known designs or combinations of known designs; or if it comprises or contains scandalous or obscene material.

A registered design’s copyright is valid for ten years from the registration date. After the initial period expires, it is extendable for five more years on an application from the registered proprietor.

TRIPS and Anti-Competitive Practices Control: Section 8 recognises “that some licencing procedures or conditions relevant to intellectual property rights that restrain competition may have harmful consequences for commerce and may impede the transfer and use of technology.”

As a result, members are permitted to identify in their legislation licencing practices or circumstances that may, in some cases, constitute an infringement of intellectual property rights and hurt competition in the relevant market.

Agreement on Sanitary and Phytosanitary (SPS) Measures

The Agreement on the Application of Sanitary and Phytosanitary Measures, also known as the SPS Agreement, was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and it entered into force with the establishment of the World Trade Organization (WTO) in early 1995.

Under the SPS agreement, the WTO imposes restrictions on members’ policies relating to food safety (bacterial contaminants, pesticides, inspection, and labelling) and animal and plant health (imported pests and diseases).

SPS & GMOs (Genetically Modified Organisms): In 2003, the US challenged several EU legislations banning the entry of Genetically Modified Organisms (GMOs), claiming they are “unjustifiable” and illegal under the SPS agreement. In May 2006, the WTO’s dispute resolution panel issued a complex ruling that criticised some aspects of the EU’s GMO regulation while dismissing many of the US’s claims.

Criticism: Quarantine measures protect human, animal, and plant health. However, quarantine barriers can be employed as a ‘technical trade barrier’ under the SPS agreement to keep out foreign rivals.

The SPS agreement gives the WTO the authority to override a country’s application of the precautionary principle, which allows them to err on the side of caution when there is no scientific certainty about potential threats to human health and the environment. The Appellate Body of the WTO held in EC Measures Concerning Meat and Meat Products (Hormones) WT/DS/26/AB/R that it was “less than clear” whether the precautionary principle had crystallised into a principle of customary international law and even if it had, it could not override the provisions of Articles 5.1 and 5.2 of the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) that (EC-Hormones sections 123, 124, and 125.) K Kennedy, “Resolving International Sanitary and Phytosanitary Disputes in the WTO: Lessons and Future Directions,” (2000), Volume 55, Food and Drug Law Journal 81 at 95. The Appellate Body further stated that the principle was not inscribed into the SPS Agreement, even though the principle was mirrored in the sixth paragraph of the SPSA’s preamble and paragraphs 3.3 and 5.7. (Paragraph 124 of EC-Hormones) Article 3.3 allows members to employ quarantine measures that are more stringent than international norms as long as they generally comply with the SPS Agreement. Article 5.7 provides for interim measures when there is inadequate scientific proof. Furthermore, the Appellate Body recognised that Article 5.7 does not always exhaust the significance of the precautionary principle and that governments frequently act prudently when there is a risk of permanent damage. (Paragraph 124 of EC-Hormones)

Under SPS rules, countries are responsible for proving scientifically that something is dangerous before it can be regulated, even though scientists agree that it is impossible to forecast all forms of damage presented by insects or pest plants.

Trade-Related Investment Treaty

The Agreement on Trade-Related Investment Measures (the “TRIMs Agreement”) only applies to investment measures related to goods trade. The Agreement says that members can not do anything with investments against GATT 1994 Article III (National Treatment on Internal Taxation and Regulation) or Article XI (General Elimination of Quantitative Restrictions). There is a list of trade-related investment policies in the Agreement that do not follow the rules in Article III, paragraph 4, about national treatment and Article XI of GATT 1994, which says that quantitative limits should be removed in general.

TRIMS Inconsistent

1. TRIMS that are inconsistent with the obligation of national treatment provided for in Paragraph 4 of Article III include those that are mandatory or enforceable under domestic law or under administrative judgements, or compliance with which is necessary to achieve an advantage, and which require:
   1. The purchase or use by an enterprise of products of domestic origin or from any domestic source, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production (“Local Content Requirements”); or
   2. An enterprise’s purchases or use of imported products should be limited to an amount related to the volume or value of local products that it exports.
2. TRIMs that do not follow through with the duty to get rid of general quantitative restrictions spelt out in paragraph I of Article XI of GATT 1994 include those that are required by domestic law or administrative rulings or that must be followed to get an advantage and that limit:
   1994. The importation by an enterprise of products used in or related to its local production, generally or to an amount related to the volume of the importation. A developing nation member experiencing balance of payment difficulties may diverge, although temporarily, from the rules of Articles III and XI of the GATT 1994.

Measure Withdrawal: Members were compelled to adhere to a strict timeframe for withdrawing measures that were incompatible with TRIMS:

• Developed country member: within two years of the WTO Agreement’s entry into force, i.e., by January 1997.
• Developing country member: within five years of the WTO Agreement’s entry into effect, i.e., by January 2000.
• Least-developed nation member: within seven years of the date of entry into force of the WTO Agreement, that is, within January 2002.

However, the Council for Trade in Goods (CTG) was allowed to extend the transition period to eliminate TRIMs for developing and least-developed country members who demonstrated difficulties implementing the Agreement’s provisions. When considering such a request, the CTG was expected to examine the members’ individual growth, financial, and trade needs.

Apart from the provisions offered to developing nations and LCD members, the agreement considered scenarios where an existing company subject to a TRIM notification had to encounter fresh competition during the transition period.

Because of this, any member, developed or developing, could apply the same TRIM to the new investment I if the products of the new investment were the same as those of the established businesses and (ii) if it was not necessary to keep the competition between the latest company and the established businesses from being harmed. Such a new measure had to be communicated to the CTG, with the termination date being the same for both old and new members.

Agreement on Trade-Related Technical Barriers (TBT)

The World Trade Organization’s Agreement on Technical Barriers to Trade, also known as the TBT Agreement, is an international treaty. It was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade and entered into force with the establishment of the WTO at the end of 1994.

The TBT Agreement aims to “ensure that technical negotiations and standards, as well as testing and certification procedures, do not create unnecessary trade barriers.”

6.2 General Tariff and Trade Agreement (GATT)

The Breton Woods Conference established the General Agreement on Tariffs and Trade (abbreviated GATT) as part of a bigger plan for economic recovery following World War II. The primary goal of the GATT was to lower trade barriers. This was accomplished through separate agreements that reduced tariff barriers, quantitative limits, and trade subsidies. GATT was a treaty, not an organisation. Initially, the GATT was intended to evolve into a full-fledged international body, similar to the World Bank or IMF, known as the International Trade Organization. However, because the agreement was never approved, the GATT remained merely an agreement. The GATT’s functions have been replaced by the World Trade Organization, which was founded following the conclusion of the final round of negotiations in the early 1990s.

6.2.1 History

The GATT’s history can be divided into three phases: the first, from 1947 until the Torquay Round, was primarily concerned with which commodities would be covered by the agreement and freezing existing tariff levels; the second, from 1947 until the Torquay Round, was primarily concerned with which commodities would be covered by the agreement and freezing existing tariff levels. A second phase, lasting three rounds from 1959 to 1979, focused on tariff reduction. The third phase, which included only the Uruguay Round from 1986 to 1994, fully extended the agreement to additional areas such as intellectual property, services, capital, and agriculture. The World Trade Organization (WTO) was born due to this round.

GATT of 1947

GATT 1947 refers to the initial version of GATT, which was formed in 1947 during the United Nations Conference on Trade and Employment in Havana, Cuba. Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, the Republic of China, Cuba, the Czechoslovak Republic, France, India, Lebanon, Luxembourg, the Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia, Syria, South Africa, the United Kingdom, and the United States signed the agreement on January 1, 1948. 45,000 tariff concessions were made, affecting over $10 billion in commerce, which at the time represented 20% of the total world market.

6.2.2 GATT 1947 in the United States

As an international agreement, the GATT is akin to a treaty. It is categorised as a congressional-executive agreement under US law. Based on the Reciprocal Trade Agreements Act gave the executive branch negotiating control over trade agreements with temporary congressional authority. It served as a temporary yet promising commerce mechanism at the time. The agreement is founded on the premise of an “unconditional most favoured nation.” This means that the requirements imposed on the most advantageous trading nation (with the fewest limitations) apply to all trading nations. Because there was widespread resistance to the International Trade Organization (which had been accepted in other nations, including Australia), President Truman never even presented it to Congress. As a result, different countries lost interest, leaving the orphaned GATT as the world’s only multilateral trade agreement, which entered into force on January 1, 1948.

6.2.3 GATT 1949, Article

The second round was held at Annecy, France, in 1949. The primary goal of the talks was to get an agreement on additional tariff reductions, which amounted to roughly 5,000.

6.2.4 GATT 1951

In 1951, the third round was held in Torquay, England. 8,700 tariff concessions were made, bringing the residual levies to three-fourths of what they were in 1948.

6.2.5 1955–1956 GATT

The fourth round was held in Geneva from May 1955 to May 1956. Tariffs totalling $2.5 billion were abolished or lowered.

6.2.6 “Dillon” GATT 1960–1962

The fifth round was held in Geneva once more, this time from 1960 to 1962. The discussions were named after US Under Secretary of State General Douglas Dillon, who initiated them. The reduction of over $4.9 billion in tariffs also resulted in discussions about forming the European Economic Community (EEC).

6.2.7 GATT “Kennedy” Agreement, 1964–1967

The sixth round was the last to be held in Geneva from 1964 to 1967, and it was named in honour of the late US President John F. Kennedy. Tariff concessions of $40 billion were made. Some of the GATT negotiating norms were also clarified.

6.2.8 1973–1979 GATT

GATT’s seventh round was held in Tokyo from 1973 to 1979. In addition to the $300 billion in tariffs, the talks successfully lowered many trade barriers. Government procurement, customs value, subsidies, countervailing measures, antidumping, standards, and import licencing were all discussed throughout the negotiations.

6.2.9 The General Agreement on Tariffs and Trade (GATT) and the World Trade Organization

In the two years that followed, the remaining 52 GATT members re-joined the WTO (the last being Congo in 1997). Since the WTO’s inception, 21 new non-GATT members have joined, with another 28 applying for membership.

Only the former Yugoslav Republic of Macedonia has not rejoined the WTO. Because FR Yugoslavia (renamed Serbia and Montenegro and later split in two) is not recognised as a direct SFRY successor state, the application is deemed a fresh (non-GATT). On December 31, 1995, the contracting parties who formed the WTO terminated the official agreement of the “GATT 1947” rules.

The WTO is an institutional entity, as opposed to GATT, and it is a set of norms agreed upon by governments. The WTO enlarged its mandate beyond trade in products to trade in services and intellectual property rights. Although it was intended to serve multilateral accords, plurilateral agreements fostered selective trading and fragmentation among members during numerous rounds of GATT negotiations (notably the Tokyo Round). WTO arrangements are, in general, a GATT multilateral agreement settlement procedure.

6.3 The formation of the World Trade Organization

The following chart depicts the WTO’s administrative framework:

 

6.4 The Uruguay Round Package: WTO Organization Structure

The Uruguay Round was launched in 1986. It was the most ambitious round to date, broadening GATT’s competence to include significant new areas such as services, finance, intellectual property, and agriculture.

Agriculture was spared from prior accords due to preferential treatment in import quotas and export subsidies, with only minor restrictions. However, by the time of the Uruguay round, several nations deemed the agriculture exception so apparent that they refused to accept a new agreement without some action on agricultural items. The fourteen countries became known as the “Cairns Group.” They comprised small and medium-sized agrarian exporters like Australia, Brazil, Canada, Indonesia, and New Zealand.

6.5 The World Trade Organization (WTO) — The Third Pillar of Global Business

Tariffs are the third pillar of WTO policies that hurt developing countries. When developing countries signed the Agriculture Agreement, they were guaranteed market access for their agricultural products in rich countries. However, market access has not been reached due to tariff peaks and escalations, and despite developed countries fulfilling their obligations to reduce tariffs,. This will remain a fundamental concern in the upcoming round of negotiations: how to assure actual tariff reductions and eliminate tariff peaks and escalations so that developing-country exports may obtain access to developed-country markets.

Tariffs are frequently known to exporters, who can therefore plan accordingly. However, non-tariff obstacles, known at the WTO, have had an even more significant detrimental impact on developing country exports than tariffs. Each non-tariff barrier could be the subject of a lengthy debate. However, it suffices to note that many of these non-tariff barriers run counter to the public pronouncements made by these countries about globalisation and liberalisation, as well as the context of a new round. Non-tariff restrictions are precisely what are limiting developing-country exports.

Domestic agriculture productivity and rural incomes in emerging countries are declining regardless of the policies many northern countries pursue. When rural incomes decline and there is a transition from conventional agricultural methods, we see a reduction in food access. This, in turn, causes migration from rural areas.