THE WORLD TRADE ORGANIZATION (WTO) A Question - Answer Booklet Frequently Asked Questions and Answers WTO Cell Planning & Development Department Punjab 1 CONTENTS I. The World Trade Organization (WTO) II. Agreement on Agriculture III. Agreement on Sanitary and Phytosanitary Measures IV. Agreement on Trade Related Investment Measures (TRIM) V. Dumping VI. Agreement on Subsidies and Countervailing Measures VII. Agreement on Safeguards VIII. Agreement on Trade Related Aspects of Intellectual Property Rights IX. General Agreement on Trade in Services (GATS) X. Glossary of Key Terms XI. Agreement on Textiles and Clothing 2 CHAPTER 1 Introduction to Multilateral Trading System Bringing Trade Relations Under the Discipline of Multilateral Rules Q: What is the World Trade Organization (WTO)? A: International trade for last six decades has been subject to the discipline of multilaterally agreed rules “by which countries are required to abide in their trade relations with one another”. The World Trade Organization (WTO, www.wto.org) established on January 01, 1995 overseas this rules-based system. The WTO presently consists of 151 member countries and is the successor to the General Agreement on Tariffs and Trade (GATT) which had been performing a similar role since January 01, 1948. Pakistan has been a founding member of the GATT as well as that of the WTO. Outling Principles of the Multilateral Trading System Q: What are the principles of multilateral trading system as embodied in the WTO agreements? A: The following principles form the basis of the WTO/GATT system: i. Non-discrimination in trade among nations ii. Protection through tariffs only iii. Maintaining predictability through binding of tariffs iv. Progressive liberalization of trade through negotiations v. Promoting fair competition in trade in the world market vi. Encouraging development and economic reforms among members 3 Laying Down Rules for Trade Without Discrimination Q: What is trade without discrimination? A: This principle of non-discrimination in trade is embodied in provisions relating to: (i) Most Favored Nation (MFN) Treatment (ii) National Treatment Favouring One, Favouring All Q: What is the Most Favored Nation (MFN) treatment? A: The Most Favored Nation (MFN) principle requires that every WTO member will treat all its trading partners equally without any prejudice and discrimination. Therefore, if a member country grants some special favor or concession to another country, it will have to extend the same favourable / concessional treatment to all other WTO members. The essence of MFN principle is the 'equality of treatment' which can be summed up as “Favour one, favour all”. The MFN principle is embodied in Article-I of GATT, which governs trade in goods, Article-II of GATS i.e. agreement relating to Trade in Services and Article-IV of Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). Q: Are there any exceptions to the MFN Principle? A: Yes. These are three major exceptions: (i) Formation of Common Markets / Free Trading Agreement / Regional Trading Agreements (ii) Positive differential action such as Generalised System of Preferences (GSP) giving special market access to a specific country or group of countries (iii) Discriminatory Actions due to unfair trade e.g. antidumping and countervailing actions. 4 Giving Foreign Goods, a National Status Q: What is the national treatment principle? A: The national treatment principle lays down that imported products are to be treated no worse in the domestic market than the local ones, once these have crossed the customs border. The same principle applies to foreign and domestic services, and foreign and local trademarks, copyrights and patents etc. However, charging customs duty on imports is not a violation of national treatment. The "national treatment (giving others the same treatment as one's own nationals) is specifically provided for the other WTO agreements (Article-III of GATT 1994, Article-XVII of GATS and Article-III of TRIPS). The principle is however, handled slightly differently in each of these agreements. Reducing (Progressively) Barriers to Trade Q: How does the WTO encourage relatively free trade? A: The WTO encourages the process of trade liberalisation through free trade, gradually reducing barriers to international trade. This is achieved through multilateral trade negotiations among member countries. Progressive reduction of barriers (both tariff and non-tariff) leads to “freerer” trade. The WTO does not seek unrestrained free trade. On the contray it tries to follow a 'structured and functionally effective' way to harness the value of open trade to principles and fairness. 5 Making Trade Flows Predictable Q: What is the principle of predictability and how it is significant? A: A predictable business environment is important for the promotion of international trade among WTO members. This is achieved by (a) binding market opening commitments and (b) tariff rates by the WTO members’ parties. WTO members cannot normally raise their tariff barriers beyond their bound levels without a complicated process of extensive negotiations and compensation to trading partners. Promoting Fair Competition Q: How does the WTO promote fair competition? A: The WTO lays down rules that favour fair competition by discouraging unfair trade practices such as dumping and export subsidies. Though, unfair practices in reality persist in a number of cases e.g. subsidies by developed countries to their farmers. Recognizing Special Needs of Developing Countries / Least Developed Countries Q: How does the WTO recognize special needs of developing and the least developed countries? A: The WTO recognises the special needs and problems of developing and the least developed countries in different parts of the world. Special and Differential Treatment (S&DT) for these countries is incorporated in the WTO laws, and rules. This is usually achieved by giving developing and the least developed 6 countries in some cases longer implementation periods and, more flexibility in matter of compliance with the WTO. 7 CHAPTER 2 RULES RELATING TO TRADE IN GOODS General Agreement on Tariffs and Trade (GATT 1994) Q: Which is the main WTO agreement governing trade in goods? A: Trade in goods is mainly regulated by the General Agreement on Tariffs and Trade (GATT 1994). There are in addition, twelve associated agreements governing trade in goods. Q: What does the GATT 1994 consists of? A: General Agreement of Tariffs and Trade (GATT 1994) consists of:- 1. General Agreement on Tariffs and Trade (1947) GATT 1947 as amended, rectified or modified of (i.e. updated amended version of the Agreement). 2. Legal instruments that came into force under GATT 1947, including protocols relating to (a) tariff concessions, (b) protocols of accession, (c) decisions on waivers (d) other decisions of contracting parties. 3. Understandings on certain GATT Articles adopted in the Ministerial Conference at Marrakesh in 1994. 4. The Marrakesh Protocol to GATT 1994. Differences Between the GATT 1994 and the GATT 1947 Q: What are the key differences between the GATT 1947 and the WTO Agreement regarding the trade in goods? A: The GATT was an agreement for multilaterals regulating international trade in goods but it was an aid hoc institution which assumed this by default. Despite 8 this disadvantage GATT (47) has been a useful institution which helped the initial trade to run smoothly organization' from 1948-1994. The GATT as an organisation no longer exists and has been replaced by the WTO. But the GATT as an international agreement still exists in a modified form of its original version and incorporating all the amendments that mere made from time to time till the creation of the WTO in 1995. The main differences between the GATT and the WTO are: a) The GATT was ad hoc and provisional. It was never ratified by members' parliaments, and it contained no provisions for the creation of an International Organization. While, the WTO and its agreements are permanent. As an international organization, it has a sound legal basis because members have ratified the WTO agreements, and the agreements themselves describe how the WTO will be functioning to promote trade. b) The WTO has members while, the signatories to the GATT were called “contracting parties” c) The GATT dealt with trade in goods only, while, the WTO covers services as well as intellectual property. d) The WTO has a more effective settling system. Exceptions to MFN Principle Q: What are the permissible exceptions to the MFN principle? A: Exceptions to the MFN principle but subject to strict conditions are permitted. These some exceptions include: a) Regional Trade Agreements (RTAs) - countries can set up free trade areas/custom unions, etc. in which goods and services coming from the member countries are given preference over those from the other countries. 9 b) Goods from certain developing countries are by developed countries given market access on special concessional terms to certain goods under the "Enabling Clause" (which makes this exception permissible). c) A country can impose on goods traded unfairly, antidumping duties by the exporting country through imposition or countervailing duties (if unfair trade was being carried on through subsidies). d) In services, countries are allowed, in limited circumstances, to depart from the principle of non-discrimination. Unravelling Schedules of Concession Q: What are schedules of concessions? A: Schedules of concession are national schedules annexed with the Marakkesh Agreement and were negotiated under the Uruguay Round setting out terms, conditions and qualifications with which goods may be imported by a country. See [Article-II of GATT 1994] No additional duties or charges may be imposed at the border on the imported goods by the WTO member other than those provided in its 'Schedule of Concessions'. Giving Right of Unhindered Transit Q: What is 'Freedom of Transit' right under GATT? A: Members of the WTO have been ensured that goods are transported without hindrance during transit across the territories of the other member countries to reach their final destination. Member can not discriminate between members' goods and means of transports with regard to goods in transit. Members are only entitled to recover reasonable charges on account of administrative expenditures 10