13th August, 2003
Ministry of Commerce & Industry  


UNDERSTANDING THE MULTILATERAL TRADING SYSTEM

A FACT FILE ON WTO

Backgrounder

  • Location: Geneva, Switzerland

  • Established: 1 January, 1995

  • Created by: Uruguay Round negotiations (1986-94)

  • Membership: 146 countries (as of 12 August, 2003)

  • Head: Supachai Panitchpakdi (Director General)

Functions:

  • Administering WTO trade agreements

  • Forum for trade negotiations

  • Handling trade disputes

  • Monitoring national trade policies

  • Technical assistance and training for developing countries

  • Cooperation with other international organisations

The multilateral trading system

The World Trade Organisation (WTO) came into being in 1995. WTO is the successor to the General Agreement on Tariffs and Trade (GATT) which was established in the wake of the Second World War.

So, while the WTO is still young, the multilateral trading system that was originally set up under GATT is well over 50 years old.

The multilateral trading system prescribes the rules of the game for international trade. These rules are continuously evolving. The first major effort to evolve such rules was in the post-World War II era which resulted in the establishment of GATT in 1948.

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.

Uruguay Round to Doha

The Uruguay Round of Multilateral Trade Negotiations, the 8th Round under GATT 1947, was launched at Punta del Este in Uruguay in September 1986 at a special session of the GATT Contracting parties held at Ministerial level. These negotiations were the most ambitious and complex until then. Negotiations covered not only the traditional GATT subjects such as tariff and non-tariff measures and the improvement of GATT rules and disciplines on subsidies, safeguards etc. but also extended to new areas not dealt with by GATT, such as Trade Related Aspects of Intellectual Property Rights (TRIPs), Trade Related Investment Measures (TRIMs) and trade in Services. Although the negotiations were to conclude in four years, the Uruguay Round was formally concluded at Marakkesh only on 15 April 1994.

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 deadline for the negotiations is 1 January, 2005.

Objectives & principles of the multilateral trading system / WTO

The basic objective of he multilateral trading system, in general, is to create conditions of fair and undistorted competition in which the member countries could trade among themselves. With this objective in mind GATT/WTO lays down four basic rules of the game:

  • Protection to domestic industry through tariffs and limiting of quantitative restrictions (QRs) on trade only to bare minimum,

  • Reduction of tariff levels and binding of tariffs at reduced levels as well as removal of non-tariff barriers (NTBs) to trade;

  • Most favoured nation (MFN) treatment which requires that tariff and other regulations should be applied to imported or exported goods without discrimination among countries, and

  • National treatment rule, which prohibits countries from discriminating between imported products and equivalent domestically produced products. Besides, there are rules of general application which include those related to:

    1. determination of dutiable value of imported goods where customs duties are collected on an ad valorem basis;

    2. application of mandatory product standards and sanitary and phytosanitary (S&PS) regulations to imported products, and

    3. issue of import licences

    4. In addition, there are rules governing:

    1. Government subsidy;

    2. Measures to protect domestic industry consisting of ‘safeguard actions’ and ‘anti-dumping and countervailing duties’ and

    3. Investment measures that are likely to have adverse impact on trade (TRIMS).

The rules prescribed by GATT 1994 and its associate agreements viz. GATS and TRIPS are to be subscribed to by all the member countries of WTO as a 'Single Undertaking'. The Members are, therefore, required to adopt national legislation and regulations to implement the rules. However, developing countries, least developed countries and transition economies have been allowed longer transition periods for the implementations of some of the obligations imposed by the agreements.

The objective of the multilateral trading system is to ensure enhanced market access among all the member countries of WTO. The obligations arising out of the agreements, however, may not in themselves ensure that the market access commitments are fulfilled by the members in practice. This requires effective monitoring of the trade policies and practices of members as well as provisions for settlement of disputes. While the Trade Policy Review Mechanism (TPRM) ensures the former, the Dispute Settlement Undertaking guarantees the latter.

Benefits from WTO Agreements / Membership

  • WTO provides a rule based, transparent and predictable multilateral trading system which protects the member countries from the pressures of their stronger trading partners.

  • WTO works on the principle of one country one vote and as such India as well as other members have a say in the rule making process in WTO. The convention is that decision making is done by consensus.

  • A major advantage arising from WTO is that it automatically guarantees Most Favored Nation (MFN) treatment implying that Members cannot discriminate between various WTO Members in their tariff regimes. In the absence of the MFN Clause, which flows from Membership of the WTO, India would have had to negotiate bilaterally with all Members for obtaining such MFN treatment.

  • The agreement also ensures national treatment for our exports, in all WTO Member countries. National Treatment ensures that our products once imported into the territory of other WTO members would not be discriminated vis-à-vis domestic products in those countries.

  • Another important benefit accruing is the availability of a strong and effective Dispute Settlement Mechanism (DSM) under the WTO. Out of 30 disputes involving India, 8 were won by India and 6 were lost. Of these, 7 disputes were won against US and the EC and 6 were lost against them. 8 cases were settled amicably. The remaining 8 disputes are continuing.

  • There are contingency protection provisions built into WTO rules, enabling Member countries to take care of exigencies like balance of payment problems and situations like surge in imports. In case of unfair trade practices causing injury to the domestic producers, there are provisions to impose Anti-dumping or Countervailing duties as provided for in the Anti-Dumping Agreement and the Subsidies and Countervailing Measures Agreement. As per the WTO Annual Report for the year 2000, India was the 2nd highest user of the Anti-dumping measures amongst all the WTO members.

  • The reduction in export subsidies on Agriculture by developed countries if effected through the Agreement on Agriculture will make Indian agricultural exports more competitive in world markets.

  • The commitment of certain developed countries under Agreement on Textiles and Clothing (ATC) to finally phase out the Textile Quotas as were being maintained by them under Multi Fibre Arrangement (MFA) by 1st January 2005 is a positive gain for Indian textile exports.

From Singapore to Cancun

The highest decision making body within WTO is the Ministerial Conference. It meets at least once in every two years. Four Ministerial Conferences have already been held: Singapore (December 1996); Geneva (May 1999); Seattle (Nov-Dec 1999); and Doha (November 2001). The fifth Ministerial Conference is scheduled to be held at Cancun, Mexico during 10-14 September 2003.

The Doha Ministerial mandate specifically provided for continuation of the concept of less than full reciprocity by developing countries as part of the negotiations. The mandated negotiations include market access issues including negotiations in agriculture covering domestic support, export subsidies and market access, market access for non-agricultural products and market access for services; issues of particular interest to developing countries like TRIPS and public health, review of Special and Differential Treatment (S & DT) provisions and Implementation issues; WTO rules including clarifying and improving Anti-dumping and Subsidies agreements, clarifying and improving disciplines on regional trade agreements and clarifying and improving of dispute settlement understanding; certain limited issues on environment; certain provisions in the TRIPs Agreement; new work programme related to Trade, Debt and Finance and Trade and Technology Transfer through the setting up of two separate Working Groups; Singapore issues requiring clarification of specified issues in each area viz. Trade and Investment, Trade and Competition Policy, Trade facilitation and Transparency in Government Procurement. In the case of Singapore issues a decision will be taken at the Fifth (Cancun) Ministerial on the start of negotiations on these issues, based on explicit consensus on modalities of negotiations.

As per the Doha Ministerial Declaration, the Fifth Session of the Ministerial Conference now scheduled to be held at Cancun during 10-14 September 2003 will take stock of progress in the on-going negotiations under the work programme adopted at Doha, provide any necessary political guidance, and take decisions as necessary.

 

(Annexure….)

Annexure

WTO Structure

  • The WTO’s top level decision-making body is the Ministerial Conference, which meets at least once every two years. The Fifth WTO Ministerial Conference will be held in Cancun, Mexico, from 10 to 14 September, 2003.

  • Below this is the General Council (normally ambassadors and heads of delegation in Geneva, but sometimes officials sent from members’ capitals) which meets several times a year in the Geneva headquarters. The General Council also meets as the Trade Policy Review Body and the Dispute Settlement Body.

  • At the next level, the Goods Council, Services Council and Intellectual Property (TRIPs) Council report to the General Council.

  • Numerous specialised committees, working groups and working parties deal with the individual agreements and other areas such as the environment, development, membership applications and regional trade agreements.

Committees under the WTO Council for Trade in Goods

Committees on:

  • Market Access

  • Agriculture

  • Sanitary and Phytosanitary Measures

  • Technical Barriers to Trade

  • Subsidies and Countervailing Measures

  • Anti-Dumping Practices

  • Customs Valuation

  • Rules of Origin

  • Import Licensing

  • Trade-Related Investment Measures

  • Safeguards

Doha Development Agenda: TNC and its bodies

Trade Negotiations Committee (TNC) : Special Sessions of

  • Services Council

  • TRIPs Council

  • Dispute Settlement Body

  • Agriculture Committee

  • Trade and Development Committee

  • Trade & Environment Committee

Negotiating Groups on

  • Market Access

  • Rules

 
 
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