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MGT601 - SME Management - Lecture Handout 39

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The emergence of World Trade Organization (WTO) in 1995, as a result of Uruguay Round of negotiations of GATT, marks a watershed in the history of international trade. GATT, the predecessor of WTO, was established by 23 countries in 1948, which liberalized the trade and created an environment that enabled the evolution of WTO is much wider as compared to GATT. It encompasses areas like textile, agriculture, services and intellectual property etc. that were excluded in the GATT.

The main guiding principles of WTO are: non-discrimination among the members in stipulation of favours regarding market access and tariff reductions provision of national treatment to foreign investors, imported goods and services stability and predictability of international trade patterns to promote confidence of investors and businesses by bounding the tariffs and market access for services; and promotion of economic development by encouraging reforms in the less developed and transition economies.

To ensure that trade is as fair as possible and as free as practical WTO has a large number of agreements that are the result of negotiations among member states. The current sets of agreements are the outcome of 1986-94 Uruguay Round negotiations. Through these agreements WTO members operate a non-discriminatory trading system that spells out their rights and obligations. Important agreements are of goods, agriculture, textile and clothing, subsidies and countervailing measures, antidumping, safeguard measures, TRIMs, customs valuation, dispute settlement, technical barriers to trade, sanitary and phytosanitary measures, GATS and TRIPs.

These agreements resulted in considerable reduction in tariffs in member countries and increased market access for developing and developed countries.

WTO Agreements: Salient Features

  1. Trade in Services
    Trade in Services is regulated by the GATS, which concerns with some basic obligations that apply to all members. its second part deals with nations schedules of commitments that contain specific assurances that will be the subject matter of ongoing process of liberalization and the third part deals with the annexes addressing the special situations of individual services sectors that are not binding on all members.
  2. Agreement on Textile and Clothing
    The Agreement of Textile and Clothing stipulates that the Multifibre Arrangement will be phased out and that the textiles and clothing sector will be integrated into WTO in four stages over 10years. The major portion i.e., 49% will be assimilated in the stage four (ending January 1, 2005).
  3. Agreement on Subsides and Countervailing Measures
    Agreement on Subsides and Countervailing Measures lays down rules on the subsidies for industrial products and on countervailing duties to counteract the effects of subsidies. Subsidies are divided into three categories; prohibited subsidies, actionable subsidies and non-actionable subsidies. Export subsidies and those contingents on the use of domestic as opposed to imported products are categorized as prohibited subsidies.
  4. Agreement on Anti-dumping
    Agreement on Anti-dumping provides the right to the contracting parties to apply anti-dumping measures, i.e. measures against imports of a product at an export price below its “normal value” if such dumped imports caused injury to a domestic industry.
  5. Agreement on Safeguards
    Agreement on Safeguard provides remedies for domestic producers injured by fairly traded imports. It allows the use of temporary protective measures but sets rules to guard against the abuse of such measures.
  6. TRIMs Agreement
    The TRIMs agreement identifies trade related investment measures that are against the provisions of the GATT and prohibits the use of such measures. TRIMs consist of investment incentives, such as subsidies, investment grants and allowances, priority access to credit, tax relief and exemption, tariff protection and other forms of fiscal, financial and commercial inducements for investment and performance requirements, such as local content, trade-balancing and export requirements.
  7. The Agreement on Custom Valuation
    The agreement on Customs Valuation intends to provide greater uniformity and certainty in the application of customs valuation rules and procedures. It provides for a fair, uniform and neutral system for the valuation of goods for customs purposes and precludes the use of arbitrary or fictitious customs values. Transaction value is the principal basis and method of value.
  8. The TBT & SPS Agreements
    The TBT and SPS Agreements do not question the right of governments to use technical regulation, standards and sanitary and phytosanitary measures for health and safety reasons. The SPS Agreement also requires that SPS measures be based on scientific justification.
  9. Agreement on TRIPs
    The Agreement on TRIPs provides for adequate intellectual property rights for copyrights, trademarks, industrial designs, layout designs of integrated circuits, patents etc. and the provision of effective enforcement measures for those rights, multilateral dispute settlement and transitional arrangements. Adequate arrangements are also proposed for the protection of Geographical Indications.
  10. General Agreement on Trade in Services
    General Agreement on Trade in Services establishes rules of conduct for governments to follow in their laws and regulations relating to services. It provides for specific commitments by member countries to open up certain sectors of services to import competition.
  11. The Dispute Settlement Mechanism
    The Dispute Settlement Mechanism is a keystone of multilateral trade order that encourages the members to solve mutual disputes by consultation but also have a legal framework for solving the matter if concerned parties fail to reach a consensus.
  12. Trade Policy Review Body
    Trade Policy Review Body encourages greater transparency in national trade policies by conduction mid term trade policy reviews.

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