H.R. College of Commerce and Economics M.Com. Part 1 – Semester 1 Paritosh Agarwal – 01 September 29, 2014 Economics of Global Trade – World Trade Organization ACKNOWLEDGEMENT I express my sincere regards to my parents and friends who have rendered theircooperation in compiling this project on ‘WTO and Developing Countries’ and conducting research. I would also like to express my gratitude to the subject Professor, Dr. Geeta Nair and Dr. Jehangir Bharucha for their guidance and encouragement in making this project a success. INDEX Sr. No. Title Page No. 01. World Trade Organization 02-04 02. Review of Literature 05-08 03. Principles of the World Trade Organization 09-09 04. Structure of the World Trade Organization 10-11 05. Functions of the World Trade Organization 12-12 06. Objectives of the World Trade Organization 13-13 07. Agendas of the World Trade Organization 14-21 08. Provisions by the World Trade Organization 22-25 09. Limitations of the World Trade Organization 26-27 Paritosh Agarwal - 01 1
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H.R. College of Commerce and Economics
M.Com. Part 1 – Semester 1
Paritosh Agarwal – 01
September 29, 2014
Economics of Global Trade – World Trade Organization
ACKNOWLEDGEMENT
I express my sincere regards to my parents and friends who have rendered theircooperation in
compiling this project on ‘WTO and Developing Countries’ and conducting research. I would
also like to express my gratitude to the subject Professor, Dr. Geeta Nair and Dr. Jehangir
Bharucha for their guidance and encouragement in making this project a success.
INDEX
Sr. No. Title Page No.
01. World Trade Organization 02-04
02. Review of Literature 05-08
03. Principles of the World Trade Organization 09-09
04. Structure of the World Trade Organization 10-11
05. Functions of the World Trade Organization 12-12
06. Objectives of the World Trade Organization 13-13
07. Agendas of the World Trade Organization 14-21
08. Provisions by the World Trade Organization 22-25
09. Limitations of the World Trade Organization 26-27
10. Developing Countries have low power in the WTO Framework 28-28
11. Conclusion 29-29
12. References 30-31
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World Trade Organization
Peace and Justice, the two desirable abstracts that are wished by every country in the world.
To achieve these, there are certain bodies or agreements that have been made around the
world with the same determination. The main purpose of such bodies is to regulate talks,
trade and other rules and regulations among the different countries of the World. The most
popular bodies are the United Nations and the World Trade Organization. Though there are a
few similarities between the GATT and the WTO, they are distinctly different from each
other.
The General Agreement on Tariffs and Trade (GATT) was a multilateral agreement
regulating international trade. It was set up in 1948 with a purpose of substantial reduction of
tariffs and other trade barriers and the elimination of preferences, on a reciprocal and
mutually advantageous basis. It was originally placed under the International Trade
Organization (ITO), which was supported by the United NationsOrganization (UNO). When
the ITO failed to ratify, GATT evolved into the World Trade Organization (WTO). There are
a few flaws in the GATT structure such as not enough enforcing power, which led to many
disputes among the members.
World Trade Organization (WTO) was formed as a replacement for GATT in 1995 with the
purpose of supervising and liberalising international trade. The organization deals with
regulation of trade between participating countries, it also provides a framework for
negotiations 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 as compared to the previous GATT. It also monitors
trade in services and trade-related aspects of intellectual property rights, in addition to trade
in goods. As at June 26, 2014, WTO has 160 member countries.(World Trade Organization,
2014)
The WTO was born out of negotiations, and everything the WTO does is the result of
negotiations. The bulk of the WTO’s current work comes from the 1986–94 negotiations
called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs
and Trade (GATT). The WTO is currently the host to new negotiations, under the ‘Doha
Development Agenda’ launched in 2001.(Page, Davenport, & Hewitt, 1991)
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The World Trade Organization (WTO) is the only international organization dealing with the
global rules of trade between nations. Its main function is to ensure that trade flows as
smoothly, predictably and freely as possible.
At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s
trading nations and ratified in their parliaments. The goal is to help producers of goods and
services, exporters, and importers conduct their business.
The past 50 years have seen an exceptional growth in world trade. Merchandise exports grew
on average by 6% annually. Total trade in 2000 was 22-times the level of 1950. GATT and
the WTO have helped to create a strong and prosperous trading system contributing to
unprecedented growth.
The system was developed through a series of trade negotiations, or rounds, held under
GATT. The first rounds dealt mainly with tariff reductions but later negotiations included
other areas such as anti-dumping and non-tariff measures. The last round, the 1986-94
Uruguay Round, led to the WTO’s creation.
The negotiations did not end there. Some continued after the end of the Uruguay Round. In
February 1997 an agreement was reached on telecommunications services, with 69
governments agreeing to wide-ranging liberalization measures that went beyond those agreed
in the Uruguay Round.(Page, Davenport, & Hewitt, 1991)
In the same year 40 governments successfully concluded negotiations for tariff-free trade in
information technology products, and 70 members concluded a financial services deal
covering more than 95% of trade in banking, insurance, securities and financial information.
In 2000, new talks started on agriculture and services. These have now been incorporated into
a broader agenda launched at the fourth WTO Ministerial Conference in Doha, Qatar, in
November 2001.
The work program, the Doha Development Agenda (DDA), adds negotiations and other work
on non-agricultural tariffs, trade and environment, WTO rules such as anti-dumping and
subsidies, investment, competition policy, trade facilitation, transparency in government
procurement, intellectual property, and a range of issues raised by developing countries as
difficulties they face in implementing the present WTO agreements.(World Trade
Organization, 2005)
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There are a number of ways of looking at the World Trade Organization. It is an organization
for trade opening. It is a forum for governments to negotiate trade agreements. It is a place
for them to settle trade disputes. It operates a system of trade rules. Essentially, the WTO is a
place where member governments try to sort out the trade problems they face with each
other.
The General Agreement on Tariffs and Trade, comprising of 118 members was thus replaced
by the WTO in 1995. While GATT was a mere legal arrangement between member nations,
the WTO is in fact a dynamic mechanism which is permanent in nature.
Nations that rely heavily upon trade are the most likely to benefit. The WTO establishes rules
and structure for international trade, providing stability for these nations' commerce. The
rules are intended to make trade as free and fair as possible. Free-trade advocates say freer,
fairer trade can lower the cost of living while providing consumers with more choices. It can
also stimulate growth, fueling development and making people more prosperous.
Opponents of the WTO say that negotiations conducted without public scrutiny end up
benefiting wealthy nations. They say the organization infringes on the sovereignty of member
states and trade deals don't consider the impact on the environment. Developing countries,
which often have uncompetitive industries that rely on government support, can be hurt by
opening up to global trade as their companies struggle against more efficient foreign rivals.
Many economists view this dislocation as a temporary setback that reverses as companies in
developing countries adapt to global competition.
Russia provides an extreme example of the political and economic considerations facing
countries that wish to join the club. The last large economy to join the WTO, which it did in
2012, Russia spent almost two decades negotiating its accession. Moscow implemented
necessary custom reforms relatively quickly when it first began negotiations in 1993, but the
government was reluctant to reduce state control of the oil and gas sectors. Inadequate
protection of intellectual property rights also damaged its candidacy, writes CFR Senior
Fellow Stewart Patrick. Political reluctance stemmed from Cold War provisions in a U.S.
trade act that prevented the establishment of normal trade relations with the Soviet Union.
(The Guardian, 2012)
Although U.S. presidents used a built-in waiver to skirt the law from 1994 until 2012, when
Congress repealed it, a new measure was introduced that aimed to blacklist Russian human
Paritosh Agarwal - 01 4
rights violators. Still, the economic incentives won out, and Russia's WTO membership is
expected to boost the country's gross domestic product by 3.3 percent ($49 billion) in the
medium-term and 11 percent in the long-term.
Review of Literature
‘Strengthening Developing Countries in the WTO’ an article by BhagirathLal Das in 1999,
talks about the GATT and WTO and the building developing nations. He further states that
earlier, the rules of the GATT had their impact principally on the imports and exports of a
country but then the WTO agreements had much wider implications for a country’s economy.
The disciplines on services and intellectual property rights (IPRs), which were the new
additions to the system as a result of the Uruguay Round of Multilateral Trade Negotiations
(MTNs), had a significant impact on the production process, technological development,
financial institutions like banks and the insurance sector, inflow and outflow of funds on the
so-called invisible account, vital modern infrastructure like telecommunications, etc.
The agreement was based on the principle of reciprocity in the exchange of concessions, it
was naturally more appropriate for participation by countries at similar levels of economic
development. To make it more relevant for the developing countries, the principle of
reciprocity was not rigidly followed in the case of concessions expected from them, while
they got the benefit of concessions made by others through the operation of the Most Favored
Nation (MFN) treatment clause which ensures total non-discrimination among the members
in respect of enjoyment of benefits. There were other advantages as well of joining the
agreement for the developing nations. It removed the need for entering into a series of
bilateral agreements with various countries and renewing them from time to time. It also
provided some protection to the weak trading partners through a multilateral dispute
settlement system, which precluded unilateral actions.
Rapid expansion of exports invariably generated protectionist tendencies, policies and
measures against the underdeveloped countries. All this curtailed the opportunities available
to the developing countries. Such tendencies revealed themselves in the form of special trade
regimes in some sectors, restraints on imports/exports outside the framework of the GATT,
enthusiastic use of anti-dumping investigations and duties, and the current trend of using
environmental concerns as a pretext for restraining imports.
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What is important to note is that the major developed countries did not hesitate to bypass or
circumvent the normal GATT disciplines in sectors of particular importance to the
developing countries when the exports from these countries in the said sectors were perceived
to cause problems for their domestic industry. (Das, 1999)
In the paper of ‘Impact of WTO Policies on Developing Countries: Issues and Perspectives’
by ‘Ravinder Rena’ in 2012, speaks of the “Doha Ministerial Declaration”, adopted on
November 14, 2001, stated that member-countries commit themselves to “substantial
improvements in market access, reductions of, with a view to phasing out, all forms of export
subsidies, and substantial reductions in trade-distorting domestic support.”
This was to be an ambitious effort to make globalization more inclusive and help the world's
poor, particularly by slashing barriers and subsidies in farming. The initial agenda comprised
both further trade liberalization and new rule-making, underpinned by commitments to
strengthen substantial assistance to developing countries. However, the negotiations have
been highly contentious. Disagreements still continue over several key areas including
agriculture subsidies, which emerged as critical in July 2006.
Small and/or developing economies face specific challenges in their participation in world
trade, for example lack of economy of scale or limited natural resources. The Doha
Declaration mandates the General Council to examine these problems and to make
recommendations to the next Ministerial Conference as to what trade-related measures could
improve the integration of small and/or developing economies.
About two thirds of the WTO’s around 150 members are developing countries. They play an
increasingly important and active role in the WTO because of their numbers, more
importance in the global economy, and also the increasingly look to trade as a vital tool in
their development efforts. Developing countries are a highly diverse group often with very
different views and concerns.
The least-developed countries have received extra attention in the WTO. All the WTO
agreements recognize that they must benefit from the greatest possible flexibility, and better-
off members must make extra efforts to lower import barriers on least-developed countries’
exports.
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The report talks about the different views country hold on the objectives to be discussed.
While the US and EU want their goods to be exported hurdle-free across the globe, the EU,
Japan and developing countries are pressurizing on putting social, economic and
environmental sustainability as higher objectives than trade. But the major nations have come
together and given utmost importance to “food and agriculture.” (Rena R. , 2012)
‘WTO Upside Down: Trade Facilitation vs Agriculture’ the research by ‘D. Ravikanth’ in
2014 highlights that India has been objecting the latest reform suggested by the US and
industrialized countries. The topic of Trade Facilitation was dropped in the Doha round of
203 but the US, the EU and its allies were able to get the topic back on to the discussion table
on July 2004. The underlying objective of the reform was freedom to transit, fees and
formalities related to the import and export of goods and services. The said ultimate aim was
to reduce the trading costs and facilitate trade for the exported in turn resulting in import
facilitation in the destination market. Effectively the trade facilitation deal is a comprehensive
market access agreement.
India has been objecting the reform as it believes that the archaic reforms need to be updated
before implementation of a brand new reform. In the Bali round held in 2013, the US
succeeded in imposing the new reform by burying the principle of reciprocity, which was
considered to be a hallmark decision in the trade negotiations.
The industrialized countries chose not to undertake no commitments on the agriculture and
development issues. The US and its allies “promised” to do their best in the interest of the
developing nations. In terms of agriculture it covers general services, an understanding on the
tariff rate quota administration, export competition and a weak long programme to phase out
subsidies in cotton. Non-binding preferential rules of origin for the export of the export of
industrial goods by the poorest countries, an operationalization of waiver on the preferential
treatment to the service suppliers in the LCDs, duty free and quota free market access for
LCDs and a mechanism to monitor special and differential treatment flexibilities formed the
part of the developmental issues.
But all these at the end are “promises” and not legally binding outcomes in agriculture and
development pillars which are a prerequisite for developing nations. After a face-to-face
negotiation between India, US and Indonesian chair of the conference and the WTO Director
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General, India’s representative gave up its position on refraining from challenging the Public
Stock Holding Programmes on staples till WTO decides a permanent solution. Ultimately the
reform was signed and India, along with the few supports, were left with a new reform
enforcement, archaic policies and a few promises. (Ravikanth, 2014)
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The book “Behind the Scenes at the WTO: the real world of international trade negotiations,
authored by FatoumataJawara and Aileen Kwa, offers a very telling account of what is to
come. The book accounts what happened before and during the Fourth Ministerial
Conference in Doha, Qatar, in November 2001. It tells how the developing countries were
bullied and coerced into acquiescing with an ‘agreement’ with which most of them
profoundly disagreed. The central message of the book is that the developed countries are
benefitting from the WTO along with a handful of other middle income countries and the
rest, including a great majority of developing countries are not. It has promoted the question
of whether the world needs the WTO or not and if it does then what should it look like. The
authors have found substantial support for and indeed arrived at their position through
numerous interviews with member government WTO delegates as well as WTO Secretariat
staff members. At the same time this position illustrates well as to why it is important for
economists to offer a theoretically coherent and empirically grounded answer to the question
of whether the world needs a WTO and if yes then what should it look like.(Jawara & Kwa,
2009)
The report titled ‘Differentiation between Developing Countries in the WTO’ prepared by the
Swedish Board of Agriculture (International Affairs Division, June) which was written by
Jonas Kasteng, Arne Karlsson, Carina Lindberg is focused to find out a more appropriate way
to differentiate between the developing countries in WTO with regards to agriculture and
food security. The countries which are included in the developing countries category are
found to belong to a very heterogeneous group. In the large group of developing countries
there are certain more advanced countries, but also a large number of poor countries that
suffer from a difficult food security situation. The category also includes certain countries
that enjoy a level of food security and also engage in agricultural exports but are yet a part of
this category of developing countries. The paper aims at presenting a different approach to
differentiate between developing countries as regards to the Agreement on Agriculture.
(Kasteng, Karlsson, & Lindberg, 2004)
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Principles of the World Trade Organization
The WTO agreements are lengthy and complex because they are legal texts covering a wide
range of activities. But a number of simple, fundamental principles run throughout all of
these documents. These principles are the foundation of the multilateral trading system.
Non-discrimination
A country should not discriminate between its trading partners and it should not discriminate
between its own and foreign products, services or nationals.
Openness
Lowering trade barriers is one of the most obvious ways of encouraging trade; these barriers
include customs duties (or tariffs) and measures such as import bans or quotas that restrict
quantities selectively. In addition, foreign companies, investors and governments should be
confident that trade barriers should not be raised arbitrarily. With stability and predictability,
investment is encouraged, jobs are created and consumers can fully enjoy the benefits of
competition — choice and lower prices.
More competitive
Discouraging ‘unfair’ practices, such as export subsidies and dumping products at below cost
to gain market share; the issues are complex, and the rules try to establish what is fair or
unfair, and how governments can respond, in particular by charging additional import duties
calculated to compensate for damage caused by unfair trade.
More beneficial for less developed countries
Giving them more time to adjust, greater flexibility and special privileges; over three-quarters
of WTO members are developing countries and countries in transition to market economies.
The WTO agreements give them transition periods to adjust to the more unfamiliar.
Protection of the environment
The WTO’s agreements permit members to take measures to protect not only the
environment but also public health, animal health and plant health. However, these measures
must be applied in the same way to both national and foreign businesses. In other words,
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members must not use environmental protection measures as a means of disguising
protectionist policies.(World Trade Organization)
Structure of the World Trade Organization
The Ministerial Conference is the highest organ of the WTO and is to meet at least once
every two years. It is normally composed of all the Ministers of Trade of the Members of the
WTO. The Ministerial Conference has supreme authority over all matters, as expressed under
Article IV: 1 WTO Agreement.
The General Council is composed of representatives of all the members – normally country
delegates based in Geneva. The General Council is in session between the meetings of the
Ministerial Council. In essence this is the real engine of the WTO and has all the powers of
the Ministerial Council when that body is not in operation. The General Council also acts as
the Dispute Settlement Body and the Trade Policy Body (Article IV: 2-4 WTO Agreement).
The Council for Trade in Goods, the Council for Trade in Services and the Council for Trade-
Related Aspects of Intellectual Property Rights (TRIPS) have been established with specific
spheres of responsibility. In fact, there are separate agreements within the framework of
WTO that define and confine their operation (Article IV: 5 WTO Agreement).
The Committee on Trade and Development, the Committee on Balance-of-Payments
Restrictions and the Committee on Budget, Finance and Administration have self-evident
functions (see Article IV: 7 WTO Agreement). Likewise the Director-General and
the Secretariat operate on a purely administrative basis. However, it should be stated that the
Director-General and the staff of the Secretariat shall be exclusively international in character
and they shall not seek or accept instructions from any government or any other authority
external to the WTO (Article VI: 4 WTO Agreement).
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(World Trade Organization)
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Functions of the World Trade Organization
The WTO is designed to play the role of a watchdog in the spheres of trade in goods, trade in
services, foreign investment, and intellectual property rights amongst others. Article III has
set out the following five functions of WTO –
1. The WTO shall facilitate the implementation, administration and operation and
further the objectives of this Agreement and of the Multilateral Trade Agreements,
and shall also provide the frame work for the implementation, administration and
operation of the multi-lateral Trade Agreements
2. The WTO shall provide the forum for negotiations among its members concerning
their multilateral trade relations in matters dealt with under the Agreement in the
Annexes to this Agreement
3. The WTO shall administer the Understanding on Rules and Procedures Governing
the Settlement of Disputes
4. The WTO shall administer Trade Policy Review Mechanism
5. To ensure the optimum use of world resources
6. With a view to achieving greater coherence in global economic policy making, the
WTO shall cooperate, as appropriate, with the international Monetary Fund (IMF)
and with the International Bank for Reconstruction and Development (IBRD) and
its affiliated agencies
(Chand, 2011)
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Objectives of the World Trade Organization
Important objectives of WTO are mentioned below:
1. To implement the new world trade system as visualised in the Agreement;
2. To promote World Trade in a manner that benefits every country;
3. To ensure that developing countries secure a better balance in the sharing of the
advantages resulting from the expansion of international trade corresponding to
their developmental needs;
4. To demolish all hurdles to an open world trading system and usher in international
economic renaissance because the world trade is an effective instrument to foster
economic growth;
5. To enhance competitiveness among all trading partners so as to benefit consumers
and help in global integration;
6. To increase the level of production and productivity with a view to ensuring level
of employment in the world;
7. To expand and utilize world resources to the best;
8. To improve the level of living for the global population and speed up economic
development of the member nations.
(Sinha, 2010)
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Agendas of the World Trade Organization
Non-discrimination
International trade is conducted mainly under the rules of the World Trade Organization. Its
non-discrimination rules are of fundamental importance. In essence, they require WTO
members not to discriminate amongst products of other WTO members in trade matters (the
most favoured- nation rule) and, subject to permitted market-access limitations, not to
discriminate against products of other WTO members in favour of domestic products (the
national treatment rule). The interpretation of these rules is quite difficult. Their reach is
potentially so broad that it has been felt that they should be limited by a number of
exceptions, some of which also present interpretative difficulties. Indeed, one of the principal
conundrums faced by WTO dispute settlement is how to strike the appropriate balance
between the rules and exceptions. Davey explores the background and justification for the
non-discrimination rules and examines how the rules and the exceptions have been
interpreted in WTO dispute settlement. He gives considerable attention to whether the
exceptions give sufficient discretion to WTO members to pursue their legitimate non-trade
policy goals.
As mentioned above, the WTO recognised and institutionalised the principle of non-
discrimination embodied in the MFN clause, which was present in GATT as well. According
to the MFN principle, no WTO member country can discriminate against other member
countries. For example, if country X imposes a tariff rate of 5% on steel coming from country
Y, it has to impose the same tariff rate on all imported steel, irrespective of the country of
origin. This non-discrimination principle of the WTO is said to be the cornerstone of the
multilateral trading regime.
However, both GATT and the WTO also recognised certain exceptions to the MFN principle.
Preferential Trading Agreements (PTAs) constitute one such exception, which permits two or
more countries to sign an agreement to form a free trade area where they can provide
preferential access to each other’s products. By signing a PTA, countries would be able to
violate the MFN obligation that they have with other WTO member countries and provide
preferences to countries that are members of the free trade area.Ten years into the WTO
regime this exception appears to have become the rule, while the primary principle of MFN is
becoming an exception.
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By the end of 2004, about 300 PTAs had been notified with GATT and the WTO. Of these,
close on 180 came into existence after 1995 -- that is, after the formation of the WTO. In
other words, about 60% of all PTAs in existence today came into effect after the most
remarkable advancement in the multilateral trading regime happened, in 1995. Estimates
suggest that by the end of 2007 the total number of PTAs will be well above the 300 mark.
Today, more than 50% of global trade takes place through PTAs, on a non-MFN basis.
Hence, earlier that was considered an exception has now become the rule. There could be
many reasons for this development.
Industrially developed countries get into PTAs in order to extract benefits that they would be
unable to secure through the multilateral trading regime, such as a more stringent intellectual
property rights regime, as well as rules relating to competition, investment, labour and the
environment. Less economically developed countries are lured into PTAs by the prospect of
getting greater market access. However, the growing number of PTAs has created a
substantial degree of confusion in the global trade regime, bringing in complicated rules and
procedures and creating difficulties for member countries in their administration.(Davey,
2012)
Dispute Settlement
One of the major advancements in the multilateral trading regime that the WTO brought in
was the setting up of a substantive dispute settlement mechanism. This has, so far, worked
well. From 1995 up to the end of 2004, WTO member countries brought 300 complaints to
the Dispute Settlement Body (DSB). The panel formed by the DSB, which is a temporary
judicial body, successfully decided 80 of these cases. About 50 such cases were appealed
with the Appellate Body (AB), a permanent judicial body of the WTO. These figures are
quite remarkable, especially compared to the situation in the pre-WTO era -- from 1948 to
1994. During that period, the settlement of disputes was marked by inordinate delays and
lack of transparency, with any one country able to delay the implementation of the rulings,
and so on. The increasing number of complaints demonstrates the faith that member countries
have in the new dispute settlement mechanism, where disputes are decided according to a
timeframe, with transparent procedures. And no country can block or delay the
implementation of the ruling.
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However, the functioning of the DSB within the WTO, over the last 10 years, has also
revealed certain limitations in the system. One major problem is the increasing degree of non-
compliance with the rulings of the DSB by industrially advanced countries and formations
like the United States and European Union.
The DSB does provide for a retaliatory mechanism whereby the winning country can retaliate
against the country that does not comply with its ruling. It is this provision that gives some
teeth to the DSB. The intention behind this mechanism is to ensure that countries comply.
However, a number of cases have demonstrated that the mechanism has not served its
purpose in situations where smaller, economically vulnerable countries are involved in
disputes with larger or economically stronger countries. One such case involved Ecuador and
the United States. In that dispute, the US refused to comply with the ruling of the DSB, which
then authorized Ecuador to retaliate against the US. However, Ecuador did not retaliate
because such retaliation would have brought more harm than good to its economy.
Notwithstanding the remarkable performance of the WTO’s DSB, therefore, the fact that it
has certain lacunae has become clear in the past decade.(Bello, 1996)
Non-tariff Barriers
The WTO came into existence at a time when tariffs – the customs duties that countries levy
on goods entering their country – were very low. The intent of successive rounds of
negotiations under GATT, which led to the formation of the WTO, was to reduce barriers to
international trade. Reduction of tariff barriers was one of the consequences of this process.
Although barriers to international trade in the form of tariffs have come down, other non-
tariff barriers have increased manifold after the formation of the WTO.
These non-tariff barriers exist mainly in the form of food standards, technical requirements,
antidumping duties, etc. Industrially developed countries often impose stricter food
standards on imports from developing countries. These standards are sometimes even stricter
than what is warranted under existing international standards. An interesting trend in the
imposition of non-tariff barriers after the formation of the WTO has been the growing
tendency of developing countries to use these measures. It is important to recall that
antidumping rules represent a remedial tool whereby countries impose additional duties on
imports that are sold in their markets at prices lower than the domestic price of the imported
goods in their country of origin.
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A number of agreements deal with various bureaucratic or legal issues that could involve
hindrances to trade include import licensing, rules for the valuation of goods at customs, pre-
shipment inspection: further checks on imports rules of origin and investment measures.
(World Trade Organization)
The Varied Interests and powers of Developing Countries and Special Focus on Least
Developed Countries.
The differences among developing countries and their agriculture sectors manifest
themselves at several levels. Africa and Latin America and the Caribbean, for instance, have
more available arable land per capita than Asian developing countries, but land appears to be
distributed more unequally in Latin America and the Caribbean. Asia and Latin America and
the Caribbean, however, have better infrastructure than Africa. Although all developing
regions have experienced increases in trade of fruits and vegetables, Asia and Latin America
and the Caribbean have been more dynamic oilseed exporters. Africa has been losing export
market share in world agricultural markets. Latin America and the Caribbean is a net
agricultural exporter, Asia became a net importer in the early 1970s, and Africa, which had a
strong positive agricultural balance in the 1960s and 1970s, has experienced deficits since
the early 1980s. The direction of trade also varies. Asian countries trade mainly within the
region; Latin American and Caribbean countries trade with Europe, the United States, and
other countries within the region; and Africa trades mostly with Europe.
An IFPRI study using cluster analysis also showed the large differences in food security
status among developing countries. Those countries appear scattered across nearly all levels
of food security and insecurity, although none appear in the very high food-secure group.
Among food-insecure countries, the profiles also differ: some are predominantly rural
(mostly in Africa and South Asia) whereas for others the urban population is more important
(like many countries in Latin America and the Caribbean and in transition economies).
Obviously the same policy (such as maintaining high prices for producers) will have
different impacts in these two types of countries. Some countries are food insecure mostly
because of low levels of calories and proteins per capita, although they do not use large
percentages of their exports to buy food. In the terminology of the study, these countries are
“consumption vulnerable” but not “trade stressed.” Other food-insecure countries are a
mirror image: they appear trade stressed (using a large percentage of their exports to buy
food) but less consumption vulnerable (their current levels of calories and proteins per capita
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are close to the average for all countries considered). Again, the policy options for these two
types of countries are different: the first group may increase imports to improve availability
of calories and proteins, whereas increasing imports may not be an option for the second
group. The different positions taken by developing countries in the Doha Round negotiations
reflect this heterogeneity.
The Cairns Group (an alliance of agricultural exporting countries that includes 3 developed-
country and 14 developing-country members) has mainly emphasized playing offense. It is
interesting to note that, although the Cairns Group is usually perceived as encompassing
countries that are large commercial exporters, in fact 3 countries in this group are in food-
insecure clusters. Other developing countries have emphasized a defensive approach
advocating additional levels of support and protection for developing countries (such as the
11 WTO members, including Cuba, the Dominican Republic, Pakistan, Sri Lanka, and
others, that presented those proposals under the general name of a “Development Box”)
while also asking for a reduction in subsidies and protection in industrialized countries. Still
other countries are trying to coordinate both approaches. India is an interesting case. On the
one hand, playing offense seems reasonable for a country that in the past few years has
emerged as one of the world’s top net exporters of agricultural products. On the other hand,
a large percentage of India’s poor population lives in rural areas. Concerns about possible
negative impacts on the rural poor have therefore underpinned the defensive components in
India’s WTO proposal, embedded in the notion of a Food Security Box (with proposals for
additional levels of support and protection comparable to the Development Box).
Acknowledging that heterogeneity, we may still make some general points. As indicated, a
dynamic agricultural sector is crucial in developing countries, particularly the poorest ones,
and research has shown that agricultural exports appear to be associated with higher levels
of growth. Higher growth, if it is broad based and stable, in turn helps reduce poverty.
Conversely, closed economies relying on the dynamics of small domestic markets tend to
show slower and more halting growth rates. If countries follow their comparative advantage,
international trade by labor-abundant, poor developing countries should increase employment
and wages, further alleviating poverty. To the extent that poverty is the main cause of food
insecurity, international trade opportunities should also help improve food security. The
expansion of trade in goods and services over the past decades, along with the decline in food
prices resulting from technological advances, has led to sharp reductions in the size of the
Paritosh Agarwal - 01 19
total food bill of developing countries as a share of total export earnings. Of course,
differences in agricultural food production and export performance by developing countries
depend on several factors, such as income and population growth, natural resource base and
climate, and technological progress; but economic policies, in both industrialized and
developing countries, also have a major impact.(Jawara & Kwa, 2009)
The WTO legal framework and the current negotiations are crucial precisely because of their
likely effects on trade and agricultural policies worldwide. When considering negotiating
positions from the point of view of the developing countries, it is important to analyze their
policies separately from those of the industrialized countries.
In addition, the least developed countries receive extra attention in the WTO. All the WTO
agreements recognize that they must benefit from the greatest possible flexibility, and better-
off members must make extra efforts to lower import barriers on least developed countries
exports.
Since the Uruguay Round agreements was signed in 1994, several decisions in favour of least
developed countries have been taken. The WTO ministers agreed in Singapore in 1996 on a
“Plan of Action for Least Developed Countries”. This includes technical assistance to enable
them to participate better in the multilateral system and a pledge from developed countries to
improve market access for least developed countries products.
A year later in October 1997, six international organizations- the International Monetary
Fund, the International Trade Centre, the United Nations Conference for Trade and
Development, the United Nations Development Program, the World Bank and the WTO
launched the “Integrated Framework”, a joint technical assistance programme exclusively for
least developed countries.
In 2002, the WTO adopted a work programme for least developed countries. It contains
several brand elements: improved market access, more technical assistance, support for
agencies working on the diversification of least developed countries economies, help in
following the work of WTO and a speedier membership process for least developed countries
negotiating to join the WTO.
At the same time, more and more member governments have unilaterally scrapped import
duties and import quotas on all exports from least developed countries.(Rena, 2012)
Paritosh Agarwal - 01 20
Policy Options for Developing Countries
Although eliminating welfare-reducing policies in rich countries should be paramount in
these negotiations, at the same time developing countries need to carefully consider their own
agricultural policies. For years many of them have discriminated against agriculture, and
although the most obvious macroeconomic biases may be gone, many countries still do not
invest enough in agriculture and rural development.
Several developing countries have expressed concern that further trade liberalization could
create problems for their large and predominantly poor agricultural populations. Poor
countries have argued for a slower pace in reducing their own tariffs on the premise that
industrialized countries should first eliminate their higher levels of protection and
subsidization.
A related concern has been how to protect the livelihoods of poor producers from sudden
negative impacts resulting from unfair trade practices such as subsidized exports and from
import surges. While insisting on a rigid sequence in which developed countries first
eliminate all their own distortions seems a sure recipe for stalemate, developing countries
seem justified in asking for significant down payments in the reduction of protection and
subsidies in industrialized countries.
Also, food-insecure and vulnerable countries need (1) longer transition times that must be
used to implement adequate rural development and poverty alleviation strategies, and (2)
simplified and streamlined instruments to confront unfair trade practices and import surges
that may irreparably damage the livelihoods of small farmers.
In particular, in the context of the negotiations it is important to clarify the possible use by
developing countries of other trade remedies against domestic and, especially, export
subsidies of industrialized countries. Some observers, however, have argued for maintaining
high levels of agricultural protection in developing countries, or even increasing it further, as
a way of reducing poverty and promoting food security. Sometimes this suggestion is
accompanied by the argument that protection “does not cost money” and is easier to
implement than subsidies in poor countries. Yet contrary to the common perception that
protection is a tax paid by foreigners and collected by governments, much of the implicit tax
is paid by domestic consumers and collected privately by producers in the form of higher
prices. This tax on food has an obvious negative impact on poor households, which in many
Paritosh Agarwal - 01 21
developing countries spend more than half of their income on food, and is mainly received by
bigger agricultural producers with larger quantities of products to sell.
Landless rural workers, poor urban households, and many poor small farmers tend to be net
buyers of food. The problems faced by poor farmers and poor consumers are better addressed
through policies and investments targeted to them directly. The focus should therefore be on
vulnerable groups rather than on crops.
The best approach for developing countries is to eliminate biases against the agricultural
sector in their general policy framework and to maintain a neutral trade policy that reduces
protection over time. They should use transition periods negotiated in the WTO to increase
investments in human capital, land tenure, water access, technology, infrastructure,
nonagricultural rural enterprises, organizations of small farmers, and other forms of social
capital and political participation for the poor and vulnerable. None of these policies is
constrained under the WTO Agreement on Agriculture. The claims that more protection is
necessary to shelter small farmers would ring hollow if the current underinvestment in rural
development and poverty alleviation in developing countries continues.
More investments targeted to the poor and vulnerable also require additional financial
resources from the international community. Industrialized countries can help by agreeing to
significantly reduce their own protectionism and subsidies in the current trade negotiations,
while simultaneously making sure there is increased funding by international and bilateral
organizations for rural development, poverty alleviation, and health and nutrition
interventions. At the same time, governments in developing countries should support
macroeconomic stability, good governance, and peace, if they want to overcome poverty and
hunger. Without addressing these other key factors, any modification in the WTO agreements
will have limited benefits.(Rena, 2012)
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Provisions by the World Trade Organization
Provisions tosafeguard the interests of developing countries
The Anti-Dumping Agreement provides that special regard must be given by the developed
country Members to the special situation of developing country Members when considering
the application of anti-dumping measures. The Agreement also stipulates that constructive
remedies provided for by the Agreement must be explored before applying anti-dumping
duties where they would affect the essential interests of developing country Members.
The Agreement on Subsidies and Countervailing Measures calls for any countervailing duty
investigation of a product originating in a developing country Member to be terminated as
soon as the authorities concerned have determined that:
1. The overall level of subsidies granted upon the product in question does not exceed
2 per cent of its value calculated on a per unit basis
2. The volume of subsidized imports represents less than 4 per cent of the total imports
of the like product in the importing Member, unless imports from developing country
Members whose individual shares of total imports represent less than 4 per cent
collectively account for more than 9 per cent of the total imports of the like product in
the importing Member
The Agreement on Safeguards provides that safeguard measures shall not be applied against a
product originating in a developing country Member as long as its share of imports of the
product concerned in the importing Member does not exceed 3 per cent, provided that
developing country Members with less than 3 per cent import share collectively account for
not more than 9 per cent of total imports of the product concerned.
The TBT Agreement provides that in the preparation and application of technical regulations,
standards and conformity assessment procedures, members must take account of the special
development, financial and trade needs of othermembers.(World Trade Organization)
Provisions allowing flexibility to Developing Countries in the use of Policy Instruments
WTO has provided for certain provisions which allow flexibility to developing countries in
the use of economic and commercial policy instruments. The following is an illustrative list
of such provisions:
Paritosh Agarwal - 01 23
The Agreement on Agriculture provides that:
1. Investment subsidies which are generally available to agriculture, agricultural input
subsidies generally available to low-income or resource-poor producers, and support
to producers to encourage diversification from growing illicit narcotic crops are
exempt from domestic support reduction commitments
2. The de minimis percentage of Aggregate Measurement of Support (AMS) under
which no reduction need be made either for product specified or non-specific
measures is 10 per cent as against 5 per cent for developed country Members
3. The requirements to reduce budgetary outlays for export subsidies and the quantities
benefitting from such subsidies are 24 and 14 per cent respectively, as against the
requirements for the developed countries to reduce by 36 and 21 per cent respectively.
4. During the implementation period, no reduction commitments need be undertaken in
respect of market and freight subsidies or internal transport subsidies on export
shipments.
5. Special and differential treatment in respect of commitments has been provided as set
out in the relevant provisions of the Agreement and embodied in the Schedules of
concessions and commitments. In the Schedules the developing country Members
with a total AMS have had to make reductions by 13.33 per cent as against 20 per
cent for the developed country Members. Similarly the simple average reduction of
tariff for the developing country Members was only by 24 per cent (subject to a
minimum of 10 per cent) as against 36 per cent (subject to a minimum of 15 per cent)
for the developed country Members.
6. The provision of foodstuffs at subsidized prices with the objective of meeting food
requirements of urban and rural poor in developing countries is not to be considered
to be a domestic support programme subject to reduction commitment.
Consequently it is provided that developing country Members are not to be expected to use
international standards as a basis for their technical regulations or standards, including test
methods, which are not appropriate to their development, financial and trade needs.
The TBT Agreement recognizes that, in their particular technological and socio-economic
conditions, developing country Members adopt certain technical regulations, standards or
conformity assessment procedures aimed at preserving indigenous technology and production
methods and processes compatible with their development needs.
Paritosh Agarwal - 01 24
GATS provides that in the negotiations for specific commitments in the process of
liberalization, there shall be appropriate flexibility for individual developing country
Members for opening fewer sectors, liberalizing fewer types of transactions, progressively
extending market access in line with their development situation and, when making access to
their markets available to foreign service suppliers, attaching to such access conditions aimed
at achieving the objectives of increasing their participation in world trade.(World Trade
Organization)
Provisions allowing longer transition periods to Developing Nations
The Agreement on Agriculture provides that developing country Members have the
flexibility to implement reduction commitments over a period of up to ten years as against six
years for developed country Members. The least-developed country Members do not have to
make any reduction commitments.
The TRIMs Agreement requires developing country Members to eliminate all TRIMs
notified under Article 5.1 within 5 years and the least developed country Members within
7 years as against 2 years for developed country Members. There is provision also for
extending the transition period for developing and least-developed country Members.
The Agreement on Customs Valuation permits developing country Members, not parties to
the corresponding Tokyo Round Agreement, to delay the application of the provisions of the
Agreement for a period not exceeding five years. The Agreement also provides for
sympathetic consideration of requests for extension of the transitional period.
The Agreement on Customs Valuation also gives the possibility to developing country
Members which currently value goods on the basis of officially established minimum values
to make a reservation to enable them to retain such values on a limited and transitional basis
under such terms and conditions as may be agreed.
The Agreement on Subsidies and Countervailing Measures provides that a developing
country which is not a least-developed country or a country with per capita income of less
than USD 1000 per annum shall have eight years to phase out prohibited export subsidies.
The Agreement also provides for a transitional period of five years for all developing country
Members and of seven years for the least-developed country Members during which the
Paritosh Agarwal - 01 25
prohibition of Article 3.1 (b) on subsidies contingent upon the use of domestic over imported
goods does not apply.(World Trade Organization)
Provisions for Technical Assistance
Many agreements provide for technical assistance to developing countries. In particular such
provisions exist in the agreement on SPS Measures, the Agreement on TBT, the Agreement
on the Implementation of Article VII (Custom Valuation) and the Agreement on TRIPS.
Technical assistance may be given to developing country members or under the technical
cooperation program of the WTO Secretariat.(World Trade Organization)
Paritosh Agarwal - 01 26
Limitations of the World Trade Organization
Ten years ago, a new World Trade Organisation that put developing country needs at the\
center of the international trade negotiation agenda was proposed. The Ministerial
Declaration adopted at the start of the Doha Development Round of trade negotiations, on
14 November 2001, was a promising response to the anti-globalization riots of the 1990s.
But the WTO membership has failed to deliver the promised pro-development changes.
Finding "development" in the Doha Development Round today is like looking for a needle
in a haystack. Developing countries have been completely sidelined by the economic and
political interests of global powers. According to the Guardian1, here are 10 examples of
how the WTO has failed the poor:
1. Cotton: The Fair trade Foundation revealed last year how the $47bn in subsidies paid
to rich-country producers in the past 10 years has created barriers for the 15 million
cotton farmers across west Africa trying to trade their way out of poverty, and how 5
million of the world's poorest farming families have been forced out of business and
into deeper poverty because of those subsidies.
2. Agricultural subsidies: Beyond cotton, WTO members have failed even to agree how
to reduce the huge subsidies paid to rich world farmers, whose overproduction
continues to threaten the livelihoods of developing world farmers.
3. Trade agreements: The WTO has also failed to clarify the deliberately ambiguous
rules on concluding trade agreements that allow the poorest countries to be
manipulated by the rich states. In Africa, in negotiations with the EU, countries have
been forced to eliminate tariffs on up to 90% of their trade because no clear rules exist
to protect them.
4. Special treatment: The rules for developing countries, called "special and differential
treatment" rules, were meant to be reviewed to make them more precise, effective and
operational. But the WTO has failed to work through the 88 proposals that would fill
the legal vacuum.
Paritosh Agarwal - 01 27
5. Medicine: The poorest in developing countries are unable to access affordable
medicine because members have failed to clarify ambiguities between the need for
governments to protect public health on one hand and on the other to protect the
intellectual property rights of pharmaceutical companies.
6. Legal costs: The WTO pledged to improve access to its expensive and complex legal
system, but has failed. In 15 years of dispute settlement under the WTO, 400 cases
have been initiated. No African country has acted as a complainant and only one least
developed country has ever filed a claim.
7. Protectionist economic policies: One of the WTO's five core functions agreed at its
inception in 1995 was to achieve more coherence in global economic policy-making.
Yet the WTO failed to curb the speedy increase in the number of protectionist
measures applied by G20 countries in response to the global economic crisis over the
past two years – despite G20 leaders' repeated affirmations of their "unwavering"
commitment to resist all forms of protectionist measures.
8. Natural disaster: The WTO fails to alleviate suffering when it has the opportunity to
do so. In the case of natural disaster, the membership will have taken almost two
years to agree and implement temporary trade concessions for Pakistan, where severe
flooding displaced 20 million people in 2010 and caused $10bn of damage. Those
measures, according to the International Centre for Trade and Sustainable
Development, would have boosted Pakistan's exports to the EU by at least €100m this
year.
9. Decision-making: The WTO makes most of its decisions by consensus – and
achieving consensus between 153 countries is nearly impossible. But this shows
another failure of the WTO: to break the link between market size and political weight
that would give small and poor countries a voice in the trade negotiations.
10. Fair trade: 10 years after the start of the Doha Development Round, governments have
failed to make trade fair. As long as small and poor countries remain without a voice,
Paritosh Agarwal - 01 28
the role of campaigning organizations, such as Tradecraft, which are working together
to eliminate cotton subsidies, will remain critical.(Walker, 2011)
Developing Countries have low power in the WTO Framework
The reasons are –
1. While developing countries make up two-thirds of WTO membership and by their
vote can in theory influence the agenda and outcome of trade negotiations, the reality
is that developing countries have never used this to their advantage. Most developing
country economies are one way or another dependent on US, EU and Japan in terms
of imports, exports, aid, security etc. They usually consider their obstruction of a
consensus at the WTO too much of a threat to their overall well-being and security.
Hence while many countries may be opposed to an agreement, as was the case with
the Trade Related Intellectual Property Rights Agreement (TRIPS) concluded in the
Uruguay Round, developing countries did not eventually obstruct its conclusion.
2. Trade negotiations are based on the principle of reciprocity or ‘trade-offs’. That is,
one country gives a concession in an area, such as the lowering of tariffs for a certain
product, in return for another country agreeing to sign on to a certain agreement. This
type of bartering benefits the large and diversified economies since they can ‘get more
by giving more’. Hence the disparity between those who can give and those who
cannot, or only a little is increased. The stronger members accrue benefits, while the
weaker ones have their interests sidelined. In fact, it is known in WTO circles that
developing countries almost never barter for benefits, but usually relent to the
requests of the developed countries. For the most part, negotiations and trade-offs take
place between the developed countries, and some of the richer or larger developing
countries.
3. Developing countries have fewer human and technical resources and therefore often
enter negotiations less prepared then their developed country counterparts.
4. Developing countries have discovered that finding recourse in the dispute settlement
system is costly and requires a level of legal expertise which they may not have.
Furthermore, the basis on which the system is run - whether a country is violating free
trade rules - is not the most appropriate for their development needs.(Khor, 2006)
Paritosh Agarwal - 01 29
For most developing countries, WTO agreements bring negative consequences because they
foreclose a wide range of development options. Through the agreements, governments give
up their power to control their domestic economies and set their development priorities.
(World Trade Organization, 2011)
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Conclusion
WTO has failed to live up to its promises over the past decade, which reveals a wider
systematic problem in the global community. True and lasting solutions to global economic
problems can only come when the model of global competitiveness between countries
become one of genuine cooperation.
However, the journey so far in redeeming the development promise of Doha has been full of
broken promises and missed deadlines, including the July 2005 deadline and beyond. This
setback follows on the heels of the important breakthrough in the negotiations attained in July
2004 package with regards to development issues. The lack of substantive motive is evident
in almost all areas of development matters, including that concerning special and differential
treatment, implementation, specific trade related needs and concerns of developing countries
and to a lesser extent, technical assistance. Will mainstream development into the WTO be a
myth or a fact that can be realised to meet the expectations of developing countries? Can the
developmental promises of the Doha, which are timely and crucial and deserve to be fully
redeemed, be translated into concrete steps in the period leading to the further WTO
conferences.
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References
Bello, J. H. (1996). The WTO Dispute Settlement Understanding: Less is More. Washington
D.C.: The American Journal of International Law.
Chand, S. (2011, August). World Trade Organization (WTO): Objectives and Functions.