World Trade Organization and General Agreement on Tariffs and Trade - Essay Example

Introduction to the globl economy [Nme of the School] [Nme of the Introduction The World Trde Orgniztion (WTO) hs become the orgniztion pr excellence for deling with interntionl trde. The trnsformtion of the Generl greement on Triffs nd Trde (GTT) into the WTO ws nturl phenomenon tht ccompnied profound chnges in the interntionl economic scene. The WTO is, without doubt, one of the min globliztion instruments. It hs contributed to this by lowering the brriers to trde nd liberlizing n ever-incresing number of economic sectors, including those of services nd intellectul property tht belong to the ntionl domin, nd by shping the economic policies of member countries. The WTO greements ssist the ctivities of trnsntionl enterprises, the principl plyers in globliztion, nd the Uruguy Round confirmed this liberliztion. From the Genev Round in 1947 to tht of the Uruguy Round in 1986-1994, the level of triffs pplied to industril products hs fllen from 40 per cent to 3.8 per cent, nd the reduced triffs tht hve been consolidted hve fcilitted the estblishment of trnsntionl economy. In the following pper I will further discuss the importnt of GTT nd WOT for interntionl trde. The nlysis will include historicl bckground of orgniztions followed by explntion of GTT replced by WTO nd generl results of such trnsformtion nd concluded by the short nd long term consequences of WTO's running. The GTT hs been clled "remrkble success history of post-wr interntionl orgniztion tht ws never intended to become one" (Grhm, 1983: 124). It strted out in 1947 s set of rules to ensure nondiscrimintion, trnsprent procedures, the settlement of disputes nd the prticiption of the lesser-developed countries in interntionl trde. To increse trde, GTT used triffs concessions, through which member countries greed to limit the level of triffs they would impose on imports from other GTT members. n importnt tool is the Most-Fvored Ntion (MFN) cluse, which clls for ech member country to grnt every other member country the sme most fvorble tretment tht it ccords to ny other country with respect to imports nd exports. (Brber, 1982: 9). MFN, in effect, provides for equl, rther thn specil, tretment. The GTT ws built on severl principles: 1. The Most Fvoured Ntion (MFN) cluse, which ensures non-discrimintory tretment. This principle, ccording to which ll dvntges, fvours, privileges or immunities grnted by one contrcting prty to product originting from or destined for ny other country shll, immeditely nd unconditionlly, be extended for the sme tretment to ny similr product originting or destined for the territory of ll other contrcting prties promotes the cuse of liberliztion. This principle reduced the trnsction costs of the negotitions for the members. ll countries hving n interest in product nd seeking to improve ccess to it in n exporting country nd hving negotited this concession, must ccord the sme to every other country. 2. The second principle of this system is tht of ntionl tretment nd is intended to complement the MFN cluse. It stipultes tht every imported product fter pyment of the customs duties must not receive less fvourble tretment thn locl product. Ech member stte is obliged to tret locl nd imported products in the sme wy. 3. The third principle is tht of trnsprency. The Mrrkesh greements reinforce trnsprency by djusting notifiction nd informtion procedures. ll lws nd regultions must be published, in order to enble other members to consult them nd ensure tht they conform to the previling legl texts in force. Trnsprency is lso the im of the review mechnism of trde policies. This enbles WTO members to exmine the implementtion of the trde policy of member stte or group of countries within regionl greement. It gives more trnsprency to trde policies. t present, the trde policies of the four biggest exporters - the United Sttes, the Europen Union, Jpn nd Cnd - re exmined every two yers, those of the sixteen other lrgest exporters every four yers, nd those of developing countries every six yers. The less dvnced countries re not subject to n exmintion t ny fixed period. Mny of the developing countries disply their very mrked interest in system tht enbles them to hve better knowledge of the trde policies of other members, to point out defects in the system nd to introduce improvements. The GTT ws not originlly intended to be n interntionl orgniztion. Rther, it ws to be multintionl trety designed to operte under the Interntionl Trde Orgniztion (ITO). However, becuse, the ITO never cme into being, the GTT becme the governing body for settling interntionl trde disputes. Grdully it evolved into n institution tht sponsored vrious successful rounds of interntionl trde negotitions with n initil focus on the reduction of previling high triffs. Hedqurtered in Genev, Switzerlnd, the GTT Secretrit conducted its work s instructed by the representtives of its member ntions. Even though the GTT hd no independent enforcement mechnism nd relied entirely on morl susion nd on frequently wvering membership dherence to its rules, it chieved, mjor progress for world trde. Erly in its story, the GTT ccomplished the reduction of duties for trde in 50m000 products, mounting to two-thirds of the vlue of the trde mong its prticipnts. In subsequent yers, specil GTT negotitions such s the Kennedy Round, nmed fter John F. Kennedy, nd the Tokyo Round, nmed fter the loction where the negotitions were greed upon, further reduced trde brriers nd improved dispute-settlement mechnisms. The GTT lso developed better provisions for deling with subsidies nd more explicit definitions of roles for import controls. The ltest GTT negotitions, clled the Uruguy Round, were uninitited in 1987. Even though triffs still were ddressed in these negotitions, their importnce hs been gretly diminished due to the success of erlier greements. The min thrust of negotitions hd become the shrpening of dispute-settlement rules nd the integrtion of the trde nd investment res tht were outside of the GTT. fter mny yers of often contentious negotitions, new ccord ws finlly rtified in erly 1995. The GTT ws supplnted by new institution, the World Trde Orgniztion (WTO), which now dministers interntionl trde nd investment ccord (www.wto.org). These ccords will grdully reduce governmentl subsidies to industries nd will convert non-triff brriers into more trnsprent triff brriers. The textile nd clothing industries eventully will be brought into the WTO regime, resulting in decresed subsidies nd fewer mrket restrictions through the Generl greement on Trde in Services (GTS). n entire new set of rules ws designed to govern the service re, nd greement lso ws reched on new rules to encourge interntionl investment flow. The Uruguy Round ws innovtive in promoting trnsprency nd liberliztion in the res tht hd remined outside multilterl discipline. The trde regime tht emerged from the Uruguy Round comprised the legisltive corpus of the GTT nd twelve nnexed greements, the greement on services nd tht on the trde spects of intellectul property Negotitions on the ccession of the thirty countries wnting to join the WTO were difficult. The countries hd to ccept whole series of mesures nd lws tht re contined in the WTO. They sometimes must follow the wishes of the developed countries. Cmbodi greed to stop importing generic drugs fter 2007, even though existing poor countries hve until 2016 to strt honouring drug ptents. Rich members lso forced it to dopt mximum griculturl triff of 60 per cent, even though the United Sttes sometimes chrges s much s 121 per cent, nd the Europen Union formidble 252 per cent. Similrly, Cmbodi promised never to subsidies griculture (The Economist, 13 September 2003). By estblishing uniform body of rules formulted in the principl greements negotited with more thn 115 countries, the WTO ensures the stbility nd foreseeble nture of commercil opertions. The economic plyers no longer hve to fer such governmentl prctices s ill-timed increses in customs duties or import restrictions. Rules governing services, stndrds, subsidies nd intellectul property rights enble economic opertors to orgnize their production on multintionl scle nd to comply with the more converging regultions (Hrt 1999:33). The Mrrkesh greements fvour the predominntly technologicl sectors (Lwrence 2000). ll trnsctions re subject to ntionl processing. Exceptions re possible, such s for ntionl security, culturl identity, technologicl sovereignty or sectoril brekdown - but they must be justified. The Mrrkesh greements hve mde provision for sfegurds: tretment stndrds for expropritions, nd mesures of locl content. Ech member stte is subject to the sme rules, hs signed the sme universl code tht is pplicble before the export of goods (inspection procedures), when these rech the frontier (evlution of customs duties nd import licences), nd - by dopting hrmonized requirements - fter the goods hve entered the territory of the importing country. Unlike its predecessor, the WTO hs become multilterl orgniztion. There were 115 members when the Mrrkesh greements were signed nd this number hs now incresed to 149, with mny countries, including the former USSR, witing to join. The Doh Summit in December 2001 confirmed the entry of Chin into the WTO fter yers of intense negotition. Developing countries hd to open bilterl negotitions with countries interested in ccession, in order to exchnge concessions nd commit themselves on ccess to goods nd services mrkets. Chin hd to open its telecommunictions nd fund mngement sectors nd stop counterfeits. The WTO ws better equipped to regulte interntionl trde thnks to the mechnism for settling disputes. It clled upon the member sttes to respect trde rules by correcting devint behvior. Settling conflicts ws ensured by consulttion procedures, good offices, concilition nd medition, rbitrtion, djudiction, nd by n ppel structure (Qureshi 1996:100). Tble 1.4 summrizes the problems treted by the mechnism for settling disputes. The WTO tkes s its bsis some generlly pplicble rules nd some tht prevent devint prctices by sttes. The first rule consists of ensuring tht frontier protection mterilizes through low triffs. Quntittive restrictions re forbidden, with the sole exception of problems concerning the blnce of pyments. Even in this cse, the GTT 1994 blnce of pyments provisions (BOP) forced the member sttes not to use quntittive restrictions but to give preference to trnsprent nd mesurble procedures bsed on price. The second rule consists of eliminting triffs nd other brriers by mens of multilterl negotitions. The reduced triffs re consolidted nd entered in the ntionl lists. More thn 98 per cent of imported industril goods in the developed countries nd trnsition economies were consolidted nd bout 73 per cent in the developing countries (DCs). Since the Kennedy Round nd the Tokyo Round, negotitions hve been extended to non-triff brriers. But new forms of protectionism re replcing the triffs tht were been reduced during the preceding rounds of the Uruguy Round. Governments re continully inventing new brriers in order to limit imports. In 1973, the GTT listed lmost 800 non-triff brriers. Certin studies show tht the triff equivlent of non-triff brrier is bout 9 per cent (Jckson 2000:155). These brriers tke the form of dministrtive brriers or 'grey zones' tht exist beyond the GTT discipline nd my pper in vrious guises, including the vrible tx pplied by the EU within the terms of the Common griculturl Policy (CP) or the 'voluntry export restrictions' (VERs). In the ltter cse, countries whose exports re incresing re sked to keep their exports within the limits negotited with the importers. These rrngements re supposed to be voluntry, but in relity they re less so. The restrictions re pplied to imports from certin countries nd re therefore incomptible with GTT rules, which stipulte non-discrimintion of imports, nd with rticle XI of the GTT, which stipultes tht there shll be "no prohibition or restrictions other thn customs duties, triffs nd other chrges, whether it be through quots, import or export licences or other mesures, shll be introduced by contrcting prty on the exports or sles for export of products destined for the territory of nother contrcting prty". (Jckson 2000) Certin non-triff brriers disply considerble ingenuity, including the mesure introduced by Frnce prescribing tht ll VCR (video cssette recorder) imports must pss through Poitiers for tretment, or the mesure insisting tht tinned foods shll be lbelled solely in the lnguge of the importing country. These brriers ffect certin griculturl products, textiles, footwer, steel nd electricl mchines nd equipment from Jpn nd Kore, mong others (UNCTD 1994:55-57). In the 1990s, these rrngements ffected 15 per cent of world trde. More thn 33 per cent of the Jpnese exports to the EU nd the United Sttes were hit by the VERs (Ruigrok et l. 1995:229), which were dded to the customs duties, restrictions nd compenstory mesures. Tble 1.2 shows some of the instruments used by developed countries to limit imports. The nti-dumping mesures hve replced other instruments previously used. VERs hve become the most importnt instrument of trde policy. However, the EU lrgely eliminted the use of VERs other thn textiles nd clothing restrints, nticipting the WTO greement by three yers (uboin nd Lird 1997:8). The liberliztion process goes beyond the elimintion of triffs nd quntittive restrictions of goods, in order to concentrte on politicl mesures ffecting ccess to the mrkets such s stndrds nd regultions, subsidies, the protection of intellectul property, nd limittions on the movements of people. Trde brriers often come in the shpe of ntionl regultions, which ws the cse for the new subjects covered by the WTO: technicl obstcles to trde, snitry nd phytosnitry mesures, nd services. In services, the mjority of the trde brriers re in the form of ntionl regultions tht, unlike the brriers tht ffect the trde in goods, do not tke on the shpe of trnsprent obstcles imposed by the customs. They pper in vrious wys: they my limit the number of compnies, the number of employees, the number of distribution points, the services tht my be offered, the mrketing prctices nd the distribution networks (Feketekuty 2000). Governments protect their service suppliers by concentrting on locl consumption of services. The wekest provisions on services concern ntionl regultions, lthough they do hve n undoubted influence on the interntionl trde in services. It is difficult to develop multilterl discipline in n re tht is so linked to ntionl sovereignty. Conclusion The GTT nd now he WTO hs mde mjor contributions to improved trde nd investment flows round the world. The success of the GTT nd the resulting increse in welfre hs refuted the old postulte tht "the strong is most powerful lone". Ntions hve incresingly come to recognize tht interntionl trde nd investment ctivites re importnt to their own economic well-being. Ntions lso hve come to ccept tht they must generte sufficient outgoing export nd incoming investment ctivities to compenste for the inflow of imports nd outgoing investments. In the medium nd long term, the blnce of pyments must be mintined. For short periods of time, gold or cpitl trnsfers cn be used to finnce deficit. Such finncing, however, cn continue only while gold nd foreign ssets lst or while foreign countries will ccept the IOUs of the deficit countries, permitting them to pile up foreign libilities. This willingness, of course, will vry. Some countries, such s the US, cn run up deficits of hundred of billions of dollrs becuse of politicl stbility, cceptble rtes of return, nd perceived economic security. Yet, over the long term, ll ntions re subject to the sme economic rules. Bibliogrphy: 1. uboin, Mrc nd Lird, Sm (1997) EU Import Mesures nd the Developing Countries, Stff working ppers TPRD 98-01. 2. Edwin L. Brber III, "Investment-Trde Nexus," in U.S. Interntionl Policy, ed. Gry Clyde Hufbuer (Wshington, DC: The interntionl Lw Institute, 1982), 9-4. 3. Feketekuty, Gez (2000) 'Improving the rchitecture of the Generl greement on Trde in Services', in Sherry Stephenson (ed.) Services Trde in the Western Hemisphere: Liberliztion, Integrtion nd Reform, Wshington, DC: The Brookings Institution, pp. 19-42. 4. Hrt, Michel (1999) ' Mtter of Synergy: The Role of Regionl greements in the Multilterl Trding System', in Donld Brry nd Ronld Keith (eds) Regionlism nd Multilterlism nd the Politics of Globl Trde, Vncouver: University of British Colombi Press. 5. Jckson John (2000) The World Trding System: Lw nd Policy of Interntionl Economic Reltions, Cmbridge, M: The MIT University Press. 6. Lwrence, Robert (2000) 'meric's Interests in the Millennium Round', in Roger Porter nd Pierre Suv (eds) Settle, the WTO nd the Future of the Multilterl Trding System, John F. Kennedy School of Government, Cmbridge, M: Hrvrd University Press. 7. Qureshi, sif (1996) The World Trde Orgnistion: Implementing Interntionl Trde Stndrds, Mnchester: Mnchester University Press. 8. Ruigrok, W. nd vn Tulder, R. (1995) The Logic of Interntionl Restructuring, London: Routledge. 9. Thoms R. Grhm, "Globl Trde:Wr nd Pece," Foreign policy 50 (spring 1983):124-127 Read More