Multilateral trading system trading
blocks, trade barriers (tariff & non
tariff) , WTO , ICC
Multilateral trading system
• The multilateral trading system refers to the
system that governs the trading among various
countries.
• This system has been established over the years
as a result of international trade negotiation
among various countries.
• The entire world is one country for the business. Erasing
national, political boundaries for the purpose of business
can be termed as globalization.
• In other words, integration of the economy of a country
with the rest of the world economy is called globalization.
• Globalization implies opening up the economy for foreign
direct investment by liberalizing the rules and regulations
by creating favorable and encouraging industrial climate.
• Indian government globalised economy by announcing
economic liberalizations in 1991.
• The steps taken by the government of India helped the
country to integrate the Indian economy with the rest of
the global economy.
• In fact, the seeds for an integrated global economy were
sown as early as 1940s when the steps were taken to
establish International Monetary Fund, International Bank
for Reconstruction and Development, General Agreement
on Tariffs and Trade.
• Now, we shall discuss briefly the establishment of GATT
and its transformation into World Trade Organization.
GATT- GENERAL AGREEMENT ON
TARIFFS AND TRADE
• The prolonged recessions before the World War II in the
west were due to the prolonged protectionism followed
by the industrialized countries.
• This let to conduct of negotiations in 1947 among 23
countries inorder to prevent the protectionism policies
and to revive the economies from the recession.
• These negotiations of the conference resulted in the
General Agreement of Tariffs and Trade (GATT) among
the participated countries. Thus GATT has its origin in
1947 at a conference in Geneva.
The objectives of GATT are:
• To raise standard of living.
• To ensure full employment and a large and steadily growing
volume of real income and effective demand.
• To develop the full use of the resources of the world, and
• To expand production and international trade.
Several rounds of negotiations were held since the inception
of GATT. The nature of the negations in the rounds during
1947 to 1960 was tariffs.
The negotiation in other rounds included antidumping
measures etc.
The significant round is the Uruguay round of 1986. The
nature of the issues in this round include agricultural and
protection of intellectual property rights under GATT.
URUAGUAY ROUND AND DUNKEL
PROPOSALS
• Uruguay round of multilateral trade negotiations was initiated in
September 1986 and concluded on 15th September 1993. Mr. Arthur
Dunkel, the Director General of GATT submitted a proposal on 20th
December 1991 popularly known as Dunkel Proposal which envisages
(predict) trade liberalizations in many areas like trade related investment
measures (TRIMs), trade related intellectual property rights (TRIPs), other
services, textiles, clothing and agriculture subsidies.
• These proposals were discussed in the final round of GATT. This round of
negotiation covers a wide range of subjects like subsidies, safeguards,
trade related intellectual property rights (TRIPs), and trade related
investment measures (TRIMs) and trade services. An agreement regarding
multilateral trading system was finally signed in Marrakesh, Morocco, on
15th April, 1994.
ESTABLISHMENT OF WORLD TRADE
ORGANISATION (WTO)
• Government of the member countries of GATT concluded the
Uruguay round negotiations on 15th December, 1994. The
ministers expressed their political support to the outcome of
the meeting by signing the final act in Marrakesh, Morocco
on 15th April 1994. According to the Marrakesh declaration,
the results of the Uruguay round would. “Strengthen the
world economy and lead to more trade, investment,
employment and income growth throughout the world”.
• In order to implement the final act of Uruguay Round
agreement of GATT the World Trade Organization (WTO) was
established on January 1, 1995.
• The Marrakesh Agreement, provides for the
establishment of World Trade Organisation (WTO)
as an apex body to oversee the implementation of
all the multilateral and plurilateral agreement
negotiated during the Uruguay Round.
• WTO has been established by renaming GATT.
• So WTO provides the institutional framework
required for the implementation and enforcement
of the multilateral trading system as agreed under
GATT’ 94.
GATT and the birth of WTO
• 1947: the birth of GATT - on 30 October 1947, the General Agreement on
Tariffs and Trade (GATT) was signed by 23 nations.
• 1948: Entry into Force. On 1 January 1948. GATT entered into force.
• 1949: Second round of Annecy: during the second round of trade
negotiations, held from April to August at Annecy, France, the contracting
parties exchanged some 5,000 tariff concessions.
• 1950: third round at Torquay. From September 1950 to April 1951, the
contracting parties exchanged some 8,700 tariffs concessions in the English
town, yielding tariff reduction of about 25 per cent in relation to the 1948
level.
• 1956: Fourth round at Geneva. The fourth was completed in May and
produced some $2.5 billion worth of tariff reduction.
• 1960: The Dillion Round: the fifth round opened in September and was
divided into phases.: the first was concerned with negotiations with EEC
(European Economic Community) member states for the creation of a
single schedule of concessions for the Community based on its Common
External Tariff, and the second was a further general round of tariff
negotiations.
• 1961: The Short – Term Arrangement, covering cotton
textiles, was agreed as an exception to the GATT rules.
• 1964: The Kennedy Round. Meeting at Ministerial level, a
Trade Negotiations Committee formally opened at Kennedy
Round in May.
• 1965: A New Chapter. The early 1960s marked the
accession to the General Agreement of many newly
independent developing countries. In Febuary, the
Contracting parties, meeting in a special session adopted
the text of part IV on trade Development.
• 1973: The Tokya Round: The Seventh Round was launched
by Ministers in September at the Japanese capital. Some 99
countries participated in negotiating a comprehensive body
of agreements covering both tariff and non-tariff matters.
• 1974: The Arrangement Regarding International Trade in
Textiles, Otherwise known as the multifibre Arrangement
(MFA), entered into force on 1 January 1974.
• 1986: The Uruguay Round. GATT trade minister met at Punta de Easte,
Uruguay, to launch the eighth Round of trade negotiations on 20 September.
Envisaged to last four years, negotiations were held in Geneva, Swizerland, and
continued for some seven and a half years convering the most wide ranging
and determined agenda of any Round so far.
• 1993: Successful Conclusion of Uruguay Round, negotiations on 15 December
1993 in Geneva, Swizerland.
• 1994: The final act of Uruguay Round: signed by Minister on 15th April 1994 in
Marrakesh, Morocco. Results included average cuts of 4o% on industrial
products; an average increase in the percentage of tariff binding from 21% to
73% (from developing countries), from 78% to 99% (for developed countries),
and from 73% to 98% (for transaction economies); a comprehensive
programme of agriculture reform, including liberalization commitments on
tariffs, domestic support and export subsides, and the replacement of all
quantitative restrictions and other non-tariff measure by tariffs, etc.
• The Uruguay Round results also transformed the provisional multilateral
trading system which had existed under GATT into the permanent World Trade
Organisation with a significantly strengthened legal mechanism for resolving
trade dispute multilaterally.
• 1995: World Trade Organization enters into force on January 1, 1995.
On may 31, 1995, WTO General Council approved the headquarters
Agreement with the Swiss Confederation, including the decision to
locate the WTO in Geneva.
• Financial Services accord reached on 28 July 1995, with governments
agreeing to negotiate further liberalization at the end of 1997.
• 1996: Basic Telecommunications negotiations are suspended in May
1996 in spite of substantial offers. Governments participating agreed to
preserve the offer to re-examine them during a 30 day period beginning
15 January 1997.
• Maritime transport services negotiations suspended in July 1996.
Members participating agreed to suspend the negotiations and to
resume them, on the basis of existing or improved offers, at the time of
the further round of comprehensive negotiations on trade in services
mandated to begin in the year 2000.
• First WTO Ministerial Conference held in Singapore, 9-13 December 1996.
Among the major conclusion of the conference was the establishment of
three working groups, respectively, on trade and investment, trade and
competition policy, and transparency in government procurement, plus a
mandate to conduct a study on trade facilitation.
• 1997: Successful Conclusion of negotiations on basis telecommunication
services: Sixty nine government agreed to wide-ranging liberalization
measures.
• On 26 March 1997, forty governments agreed to cut custom duty on
information technology products by 2000. international trade in these
products amounts to some $ 600 billion annually.
• Successful conclusion of negotiations on financial services on 12
December 1997. Seventy government reached a multinational agreement
to open their financial services sectors, covering more than 95 % of trade
in banking, insurance, securities and financial information. The agreement
will enter into force on 1 March 1999.
• India is one of the founder members of the WTO. The GATT was not
an organization but it was only a legal agreement. On the other
hand WTO is designed to play the role of watchdog in the spheres
of trade in goods, trade in services, foreign investment, intellectual
property rights etc.
• The WTO shall facilitate the implementation, administration and
operation and further the objectives of this agreement and on the
Multinational Trade Agreements and shall also provide the frame
work for implementation, administration and operation of the
plurilateral trade agreements.
• The WTO shall provide the forum for negotiation among its
members concerning their multilateral trade relations in matters
dealt with under the agreement in the Annexes to this agreement.
• The WTO shall administer the understanding on Rules & procedure
governing & settlement of disputes.
• The WTO shall administer the trade policy review Mechanism, with
a view to achieving greater coherence in global economic policymaking, the WTO shall co-operate, as appropriate, with the
International Monetary Fund and with the international Bank for
Reconstruction and Development and its affiliated agencies.
World Trade Organization (WTO)
•
The World Trade Organization (WTO) deals with the global rules of trade between
nations. Its main function is to ensure that trade flows as smoothly, predictably
and freely as possible.
•
The ojective of WTO are, the same as those of the GATT i.e. to secure the conduct
of international trade on the basis of non-discrimination.
•
This is based on the most favoured nation (MFN) principle which states that
discrimination among the WTO members is not allowed.
•
WTO is an organization for liberalizing trade, a forum for governments to negotiate
trade agreements and a place for them to settle trade disputes
•
At the heart of the system — known as the multilateral trading system — are the
WTO’s agreements, negotiated and signed by a large majority of the world’s
trading nations, and ratified in their parliaments.
•
The WTO has larger membership than GATT, with the numbers being 153. India is
one of the founder members of GATT.
Objective of WTO
• Raising the standard of living and income.
• Ensuring full employment
• Expanding production, trade and optimal use
of world’s resources.
Functions of WTO:
WTO is based in Geneva, Switzerland. Its functions
are:
 Administering the multilateral trade agreements
which together make up the WTO
 Acting as a forum for multilateral trade negotiations
 Seeking to resolve trade disputes
 WTO is not a “Free trade” institution. It permits
tariffs and other forms of protection but only in
limited circumstances.
Principles of WTO
• Non discrimination
• Free Trade: Promote free trade between nations
through negotiations.
• Stability in the trading system: Member countries
are committed not to raise tariff and non tariffs
barriers arbitrarily.
• Promotion of Fair Competition: WTO provides for
transparent, fair and undistorted competition.
• It discourages unfair competitive practices such as
export subsidies and dumping.
Multilateral Trading System: Legal
Framework
Multilateral Trading System
Rules
Protection to Domestic
Industry
Meeting Threats of Unfair
Trade Competition
Protection through
Safeguard Measures for
Import tariffs only
Anti dumping
Reduction in import tariffs &
duties
binding against further increase
MFN Principle
National Treatment Rule
Economic
Serious injury
Development
Counter
vailing duties
TRIMS (Trade Related Investment
Measures)
• TRIMS refers to certain conditions or restrictions
imposed by a government in respect of foreign
investment in the country.
• In the late 1980's, there was a significant increase in
foreign direct investment throughout the world.
• TRIMS are widely employed by developing countries.
The Agreement on TRIMs provides that no contracting
party shall apply any TRIM which is inconsistent with
the WTO articles
Anti Dumping Measures:
• The WTO Agreement provides clarity in the method of determining that a
product is dumped.
• A product is regarded as dumped when its export price is less than the
normal price in the exporting country or its cost of production plus a
reasonable amount of administrative, selling and any other costs.
• Anti-dumping duties are to be imposed on goods that are deemed to be
dumped and causing injury to producers of competing products in the
importing country. These duties are equal to the difference between the
goods’ export price and their normal value, if dumping causes injury.
• Countervailing measures - Action taken by the importing country, usually
in the form of increased duties to offset subsidies given to producers or
exporters in the exporting country.
Evaluation of WTO
• The WTO members now account for over 97% of the
international trade indicating the potential of bringing about
an orderly development of international trade.
Benefits of WTO:
• GATT / WTO has made significant achievements in reducing
tariff and non tariff barriers to trade. Developing countries
too have been benefiting significantly.
• Liberalization of investments has been fostering economic
growth of a number of countries.
• It has a system in place to settle trade disputes between
nations.
• It has a mechanism to deal with violation of trade
agreements.
Drawbacks:
• Negotiations and decision making in the WTO
are dominated by the developed countries.
• Many developing countries do not have the
financial and knowledge resources to effectively
participate in WTO discussions and negotiations.
• Due to the dependence of developing countries
on the developed ones, the developed countries
are able to resort to arms twisting tactics.
Tariff: A tariff is a tax. It adds to the cost of imported goods
and is one of several trade policies that a country can
enact.
Non-tariff barriers to trade (NTBs) are trade barriers that
restrict imports but are not in the usual form of a tariff.
Some common examples of NTB's are anti- dumping
measures and countervailing duties.
sanitary and phytosanitary measures (SPS):
• SPS measures refer to any measure, procedure,
requirement, or regulation, taken by governments to
protect human, animal, or plant life or health from the
risks arising from the spread of pests, diseases,
disease-causing organisms, or from additives, toxins, or
contaminants found in food, beverages, or feedstuffs.
• Specific Tariffs : A fixed fee imposed on one unit of an
imported good is referred to as a specific tariff. For
example, a country could charge a $15 tariff on each pair
of shoes imported, but levy a $300 tariff on each
computer imported.
Ad Valorem Tariffs this type of tariff is levied on a good
based on a percentage of that good's value. An example
of an ad valorem tariff would be a 15% tariff levied by
Japan on U.S. automobiles.
Import Quotas : An import quota is a restriction placed
on the amount of a particular good that can be imported.
• free trade area : Trade within the group is duty free but
members set their own tariffs on imports from nonmembers (e.g. NAFTA).
Difference between GATT and WTO
GATT
WTO
•It is a set of rules and multilateral agreement.
•It was designed with an attempt to establish
International Trade Organisation.
•It was applied on a provisional basis.
•Its rules are applicable on trade in merchandise
goods.
•GATT was originally a multilateral instrument, but
plurilateral agreements were added at a later
stage.
•Its dispute settlement system was not faster and
automatic.
•It is a permanent institution.
•It is established to serve its own purpose.
•Its activities are full and permanent.
•Its rules are applicable to trade in merchandise
and trade in services and trade in related aspects
of intellectual property.
•Its agreements are almost multilateral.
•Its dispute settlement system was fast and
automatic.
ICC (International Chamber of
Commerce)
• ICC is the world business organization, a representative body that
speaks with authority on behalf of enterprises from all sectors in every
part of the world.
• ICC promotes an open international trade and investment system and
the market economy, and helps business corporations meet the
challenges and opportunities of globalization.
• Business leaders and experts drawn from ICC’s global membership
establish the business stance on broad issues of trade and investment
policy as well as on vital technical subjects. ICC was founded in 1919
and today it groups thousands of member companies and associations
from 130 countries.
Trading Blocks and Trade Agreements
• There are five different types of economies
integration:
• Free trade area
• Custom union
• Common market
• Complete Economic Union
• Complete Political Integration
Free trade area:
• In this economic integration, member nations
remove all trade impediments among
themselves but retain their own policies with
the outside world.
• That means member countries do not charge
any import tariff on imports from each other
but they do have their respective policies on
imports from the countries outside the group.
• Custom Union:
• This arrangement of economic integration is
similar to free trade area. Besides, member
nations also have common external
commercial relations.
• For example – they adopt common external
tariff on imports from the non – member
nations.
• Common Market:
• In this, the member nations have custom
union agreement with one another and they
also agree for each factor mobility across the
national borders of member countries.
• That is to say, the common market
arrangement also permits free movement of
labour and capital amongst the member
nations.
Complete Economic Union:
• In this member countries are part of common
market and agree to have complete
unification of monetary and fiscal policies.
Complete political integration:
• In this, the nation members have a central
parliament with the control of a national
government.