Why need RTA’s?
Tamanna Chaturvedi
Consultant
Indian Institute of Foreign Trade
Why should Thailand or China trade with
CLMV countries: case of China and Vietnam
6t
1t
1m
3m
kgs/man hr
kgs/man hr
Ch. had absolute advantage over Vietnm in prod of tea (sp in tea and no mngoes)
Vietnm has absolute advantage over Ch. in prod of mngoes( sp in mngoes and no tea
China will sell 6 kgs tea to Vietnam
Take 3kgs mango in return
China would exchange 6kgs of tea with 3kgs of
mango from Vietnam
and both countries would gain..……...how?

If China would have dedicated its one man hour in
producing mangoes it would have produced 1M.
Now its diverting that labour to production of tea
hence can produce 6 kgs of tea in one hour and
exchange it with 3kgs of mango from Vietnam
thereby gaining 2m (3m-m)

To produce 6 kgs of tea, Vietnam would be req. 6
manhrs. If these 6 manhrs are diverted from tea to
mangoes, Vietnam can produce 18mangoes. Out of
this 3 mangoes are exchanged with China and
Vietnam still have an advantage of 15 mangoes.
Case of Thailand and Lao PDR
6s
1s
3r
2r
kgs/man hr
bushels/man hr
Oops….Thailand had absolute advantage over Lao PDR in prod of both sugar and
rice
Let’s analyze two country’s position…..

Lao’s position:




Lao has absolute disadvantage with respect to Thailand in both
sugar and rice.
Lao has relatively less disadvantage in rice than in sugar.Or
Lao has comparative adv wrt Thailand in rice & comparative
disadvantage in sugar.
Thailand’s position:



Thai has absolute advantage with respect to Lao in both sugar and
rice
It has relatively more advantage in sugar (6:1) than rice (3:2)
Thai has comparative advantage over Lao in sugar and
comparative disadv in rice.
Can a business deal still crack?
……..lets see how?

Thailand sp in sugar and Lao in rice.

Thai exchanges 6s for 6r with Lao

Thailand’s position

Thai gains 3r by only producing sugar and no rice

Lao’s position

If Lao would not have taken 6s from Thai, it would have req
6 manhrs to produce that.

This 6 hrs if dedicated to produce rice, it can produce
6*2=12r

Out of this 6r is given to Thai and still have advantage of 6r.
Case of Thailand and Lao PDR
6s
1s
3r
2r
kgs/man hr
bushels/man hr
Thailand had absolute advantage over Lao PDR in prod of both sugar and rice
What is it after all?
WTO GENESIS

The General Agreement on Trade and Tariff (GATT) came
into existence in 1947
 It sought substantial reduction in tariff and other barriers to
trade and to eliminate discriminatory treatment in
international commerce.
 Eight rounds of negotiations had taken place during five
decades of its existence.
 23 Countries came together to form GATT
Were you there?
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Australia
Belgium
Brazil
Burma (now Myanmar)
Canada
Ceylon (now Sri Lanka)
Chile,
China
Cuba
Czechoslovakia
France
India
13 Lebanon
14 Luxembourg
15 The Netherlands
16 New Zealand
17 Norway
18 Pakistan
19 Zimbabwe
20
21
22
23
Syria
South Africa
United Kingdom
United States
Eight rounds of GATT…..WTO.. How different was it?
Agriculture
Textiles and Clothing
Services
UR
1986-93
Tokyo
1973-79
Kennedy
1964-67
Dhillon
1960-61
Geneva Round 1956
Torquay Round 1951
Annecy Round 1949
Geneva Round 1947
TRIPS
Dispute Settlement
Some factS…
The World Trade Organization (WTO) is the only global
international organization dealing with the rules of trade
between nations.
Location
Established
Created by
Membership
Head
Secretariat staff
:
:
:
:
:
:
Geneva, Switzerland
1 January 1995
Uruguay Round negotiations
153 countries
Pascal Lamy (DG)
550
WTO Journey of GMS Country
Thailand &
Myanmar1995
China: 2001
Cambodia: 2003
Lao:
Vietnam: 2006
Observer Status Countries
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Afghanistan
Algeria
Belarus
Bhutan
Bosnia
Ethipoia
Iran
Iraq
Kazakastan
Lao PDR
Libya
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
Russian Federation
Saudi Arabia
Serbia
Seychelles
Sudan
Tazakistan
Tonga
Ukraine
Uzbekistan
Yemen
Application
Working Party
Established
Number of Working
Party Meetings *
Draft Working
Party Report **
Afghanistan
Nov 2004
Dec 2004
Algeria
Jun 1987
Jun 1987
9
Jun 2006
Andorra
Jul 1997
Oct 1997
1
Azerbaijan
Jun 1997
Jul 1997
4
Bahamas
May 2001
Jul 2001
Belarus
Sep 1993
Oct 1993
7
Apr 2005 (FS)
Bhutan
Sep 1999
Oct 1999
3
Aug 2005 (FS)
Bosnia and Herzegovina
May 1999
Jul 1999
2
Cape Verde
Nov 1999
Jul 2000
3
Nov 2005
Ethiopia
Jan 2003
Feb 2003
Iran
Jul 1996
May 2005
Iraq
Sep 2004
Dec 2004
Kazakhstan
Jan 1996
Feb 1996
9
Sep 2006
Lao People's Democratic
Republic
Jul 1997
Feb 1998
2
Lebanese Republic
Jan 1999
Apr 1999
4
Libyan Arab Jamahiriya
Jun 2004
Jul 2004
Dec 2005 (FS)
BASIC PRINCIPLES
1.
NON-DISCRIMINATION
 MFN (Most Favored Nation)
Members are bound to grant to the products of other
members treatment not less favorable than that
accorded to the products of any other country.
 National Treatment
Once goods have cleared customs, imported goods must
be treated no less favorably than the equivalent
domestically produced goods.
2. PREDICTABLE AND GROWING ACCESS TO THE MARKETS





3.
Prohibition of Quantitative Restrictions
Binding of Tariffs
Bound Tariffs cannot be increased
Progressive reduction in the protection.
Exceptions: Safeguards, BOP.
FAIR COMPETITION
4. TRANSPARENCY
5. ENCOURAGE DEVELOPMENT
STRUCTURE OF WTO
Dispute
Settlement
Panel
Apellate
Body
Council for
Trade in
Goods
- Textiles Monitoring
Body
- Committee on
safeguards
- Committee on Import
Licensing
- Committee on Anti
Dumping Practices
- Committee on
Technical Barriers to
Trade
- Committee on
Customs Valuation
- Committee on
Subsidies &
Countervailing
measures
- Committee on Rules
of Origin
- Committee on Trade
related Investment
Measures
- Committee on
Sanitary &
Phytosanitary
Measures
- Committee on
Agriculture
- Committee on
Market Access
Dispute
Settlement
Body
Committee on
Trade &
Environment
Trade and
Development
BOP
MINISTERIAL
CONFERENCE
General
Council
Budget Finance &
Administration
Trade Policy
Review Body
Trade in
Civil
Aviation
Council for
Trade in
Services
- Working party on professional services
- Committee on Trade in Financial Services
- NG on Maritime Transport Services
- NG on Movement of Natural Persons
- NG on Basic Telecommunications
Council for
TRIPS
Government
procurement
International
Dairy Council
International
Meat Council
Ministerial conferences

Hong Kong, 13-18 December 2005

Cancún, 10-14 September 2003

Doha, 9-13 November 2001

Seattle, November 30 – December 3, 1999

Geneva, 18-20 May 1998

Singapore, 9-13 December 1996
Annex 1-A: Agreement on Trade in Goods
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Agreement
Agreement
Agreement
Agreement
Agreement
Agreement
Agreement
Agreement
Agreement
Agreement
on
on
on
on
on
on
on
on
on
on
Agriculture
SPS Measures
Textiles & Clothing
Technical Barriers to Trade
Trade related Investment Measures
Pre Shipment Inspection
Rules of Origin
Import Licensing procedure
SCM
Safeguards
Ministerial conferences

Hong Kong, 13-18 December 2005

Cancún, 10-14 September 2003

Doha, 9-13 November 2001

Seattle, November 30 – December 3, 1999

Geneva, 18-20 May 1998

Singapore, 9-13 December 1996
Singapore, 9-13 December 1996


Review of first two years of work
Setting up of working groups




International investment
Competition policy
Transparency in Govn procurement
Trade facilitation
Geneva, 18-20 May 1998



Celebration of 50 years of GATT
First negative views expressed (Asian
financial crises)
Developed countries interest
 Discussion of trade and environment
 Labour standards
Seattle, November 30 – December 3, 1999



Divisions between rich and poor nations
become most obvious
Violent anti-WTO protests by NGOs
Many country ministers actually walked
out of the negotiations, leading to an early
end to the conference with nothing of
value achieved
Doha, 9-13 November 2001


Decisions taken at Doha related to the concerns
of developing countries
Doha Development Agenda



negotiations to clarify or revise anti-dumping rules;
transparency in government procurement,
investment and competition policy.
TRIPs not being allowed to be an impediment to
public health in poorer countries
Cancún, 10-14 September 2003



Foreign investors (developing countries feared
their industries will be controlled by foreign
multinationals)
Transparency in government purchasing
(developing countries feared this might help
foreign companies win public sector business)
Trade facilitation -- making things like customs
procedures simpler
Cancún, 10-14 September 2003
WTO rules in short…..
1.
2.
3.
4.
5.
The WTO does NOT tell governments what to do
The WTO is NOT for free trade at any cost
Weaker countries do have a choice, they are NOT
forced to join the WTO
The WTO is NOT only concerned about commercial
interests. This does NOT take priority over
development
The WTO is NOT undemocratic
Then why countries went into signing RTA’s?