MULILATERAL TRADE NOGOTIATIONS & AGREEMENTS VII
& IX
Functions:
Among the
various functions of the WTO, these are regarded by analysts as the most
important:
It
oversees the implementation, administration and operation of the covered
agreements. It provides a forum for negotiations and for settling disputes.
Additionally,
it is the WTO's duty to review and propagate the national trade policies, and
to ensure the coherence and transparency of trade policies through surveillance
in global economic policy-making. Another priority of the WTO is the assistance
of developing, least-developed and low-income countries in transition to adjust
to WTO rules and disciplines through technical cooperation and training.
The WTO shall facilitate the implementation,
administration and operation and further the objectives of this Agreement and of
the Multilateral Trade Agreements, and shall also provide the frame work for
the implementation, administration and operation of the multilateral Trade
Agreements.
The WTO shall provide the forum for negotiations
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
and Procedures Governing the Settlement of Disputes.
(iv)The
WTO shall administer Trade Policy Review Mechanism.
With a view to achieving greater coherence in
global economic policy making, the
WTO shall
cooperate, as appropriate, with the international Monetary Fund (IMF) and with
the International Bank for Reconstruction and Development (IBRD) and its
affiliated agencies.
The above
five listings are the additional functions of the World Trade Organization. As
globalization proceeds in today's society, the necessity of an International
Organization to manage the trading systems has been of vital importance. As the
trade volume increases, issues such as protectionism, trade barriers,
subsidies, violation of intellectual property arise due to the differences in
the trading rules of every nation. The World Trade Organization serves as the
mediator between the nations when such problems arise. WTO could be referred to
as the product of globalization and also as one of the most important
organizations in today's globalized society.
The WTO
is also a center of economic research and analysis: regular assessments of the
global trade picture in its annual publications and research reports on
specific topics are produced by the organization. Finally, the WTO cooperates
closely with the two other components of the Bretton Woods system, the IMF and
the World Bank.
Principles of the trading system
The WTO
establishes a framework for trade policies; it does not define or specify
outcomes. That is, it is concerned with setting the rules of the trade policy
games. Five principles are of particular importance in understanding both the
pre-1994 GATT and the WTO:
Non-discrimination. It has
two major components: the most favored nation (MFN) rule, and the national treatment policy. Both are embedded in the main
WTO rules on goods, services, and intellectual property, but their precise
scope and nature differ across these areas. The MFN rule requires that a WTO
member must apply the same conditions on all trade with other WTO members, i.e.
a WTO member has to grant the most favorable conditions under which it allows trade
in a certain product type to all other WTO members. "Grant someone a
special favor and you have to do the same for all other WTO members."
National treatment means that imported goods should be treated no less
favorably than domestically produced goods (at least after the foreign goods
have entered the market) and was introduced to tackle non-tariff barriers to
trade (e.g. technical standards, security standards et al. discriminating
against imported goods).
Reciprocity. It reflects both a desire to
limit the scope of free-riding that may arise because of the MFN rule, and a desire to obtain better access to
foreign markets. A related point is that for a nation to negotiate, it is
necessary that the gain from doing so be greater than the gain available from
unilateral liberalization; reciprocal concessions intend to ensure that such
gains will materialize.
Binding and enforceable commitments. The
tariff commitments made by WTO members
in a multilateral trade negotiation and on accession are enumerated in a
schedule (list) of concessions. These schedules establish "ceiling
bindings": a country can change its bindings, but only after negotiating
with its trading partners, which could mean compensating them for loss of
trade. If satisfaction is not obtained, the complaining country may invoke the
WTO dispute settlement procedures.
Transparency. The WTO members are required to
publish their trade regulations, to maintain
institutions allowing for the review of administrative decisions affecting
trade, to respond to requests for information by other members, and to notify
changes in trade policies to the WTO. These internal transparency requirements
are supplemented and facilitated by periodic country-specific reports (trade
policy reviews) through the Trade Policy Review Mechanism (TPRM).The WTO system
tries also to improve predictability and stability, discouraging the use of
quotas and other measures used to set limits on quantities of imports.
Safety valves. In specific circumstances,
governments are able to restrict trade. The
WTO's agreements permit members to take measures to protect not only the
environment but also public health, animal health and plant health.
There are
three types of provision in this direction:
Articles
allowing for the use of trade measures to attain non-economic objectives;
Articles aimed at
ensuring "fair competition"; members
must not use environmental protection
measures as a
means of disguising
protectionist policies.
Provisions
permitting intervention in trade for economic reasons.
Exceptions
to the MFN principle also allow for preferential treatment of developing
countries, regional free trade areas and customs unions.
Organizational structure
The
General Council has the following subsidiary bodies which oversee committees in
different areas:
Council
for Trade in Goods
There are
11 committees under the jurisdiction of the Goods Council each with a specific
task. All members of the WTO participate in the committees. The Textiles
Monitoring Body is separate from the other committees but still under the
jurisdiction of Goods
Council.
The body has its own chairman and only 10 members. The body also has several
groups relating to textiles.
Council
for Trade-Related Aspects of Intellectual Property Rights
Information
on intellectual property in the WTO, news and official records of the
activities of the TRIPS Council, and details of the WTO's work with other
international organizations in the field.
Council
for Trade in Services
The
Council for Trade in Services operates under the guidance of the General
Council and is responsible for overseeing the functioning of the General
Agreement on Trade in Services (GATS). It is open to all WTO members, and can
create subsidiary bodies as required
Trade
Negotiations Committee
The Trade
Negotiations Committee (TNC) is the committee that deals with the current trade
talks round. The chair is WTO's director-general. As of June 2012 the committee
was tasked with the Doha Development Round.
The
Service Council has three subsidiary bodies: financial services, domestic
regulations, GATS rules and specific commitments. The council has several
different committees, working groups, and working parties. There are committees
on the following: Trade and Environment; Trade and Development (Subcommittee on
Least-Developed Countries); Regional Trade Agreements; Balance of Payments
Restrictions; and Budget, Finance and Administration. There are working parties
on the following: Accession. There are working groups on the following: Trade,
debt and finance; and Trade and technology transfer.
Decision-making
The WTO
describes itself as "a rules-based, member-driven organization - all
decisions are made by the member governments, and the rules are the outcome of
negotiations among members."The WTO Agreement foresees votes where
consensus cannot be reached, but the practice of consensus dominates the
process of decision-making.
Richard
Harold Steinberg (2002) argues that although the WTO's consensus governance
model provides law-based initial bargaining, trading rounds close through
power-based bargaining favoring Europe and the U.S., and may not lead to Pareto
improvement.
Dispute settlement
In 1994,
the WTO members agreed on the Understanding on Rules and Procedures Governing
the Settlement of Disputes (DSU) annexed to the "Final Act" signed in
Marrakesh in 1994. Dispute settlement is regarded by the WTO as the central
pillar of the multilateral trading system, and as a "unique contribution
to the stability of the global economy". WTO members have agreed that, if
they believe fellow-members are violating trade rules, they will use the
multilateral system of settling disputes instead of taking action unilaterally.
The
operation of the WTO dispute settlement process involves the DSB panels, the
Appellate Body, the WTO Secretariat, arbitrators, independent experts and
several specialized institutions. Bodies involved in the dispute settlement
process, World Trade Organization.
Accession and membership
The
process of becoming a WTO member is unique to each applicant country, and the
terms of accession are dependent upon the country's stage of economic
development and current trade regime. The process takes about five years, on
average, but it can last more if the country is less than fully committed to
the process or if political issues interfere. The shortest accession
negotiation was that of the Kyrgyz Republic, while the longest was that of
Russia, which, having first applied to join GATT in 1993 was approved for
membership in December 2011 and became a WTO member on 22 August 2012. The
second longest was that of Vanuatu, whose Working Party on the Accession of
Vanuatu was established on 11 July 1995.
After a
final meeting of the Working Party in October 2001, Vanuatu requested more time
to consider its accession terms. In 2008, it indicated its interest to resume
and conclude its WTO accession. The Working Party on the Accession of Vanuatu
was reconvened informally on 4 April 2011 to discuss Vanuatu's future WTO
membership. The re-convened Working Party completed its mandate on 2 May 2011.
The General Council formally approved the Accession Package of Vanuatu on 26
October 2011. On 24 August 2012, the WTO welcomed Vanuatu as its 157th member.
An offer of accession is only given once consensus is reached among interested
parties.
Accession process
WTO
accession progress:
Members
(including dual-representation with the European Union) Draft Working Party
Report or Factual Summary adopted
Goods
and/or Services offers submitted
Memorandum
on Foreign Trade Regime (FTR) submitted
Observer,
negotiations to start later or no Memorandum on FTR submitted Frozen procedures
or no negotiations in the last 3 years
No
official interaction with the WTO
A country
wishing to accede to the WTO submits an application to the General Council, and
has to describe all aspects of its trade and economic policies that have a
bearing on WTO agreements. The application is submitted to the WTO in a
memorandum which is examined by a working party open to all interested WTO
Members.
After all
necessary background information has been acquired; the working party focuses
on issues of discrepancy between the WTO rules and the applicant's
international and domestic trade policies and laws. The working party determines
the terms and conditions of entry into the WTO for the applicant nation, and
may consider transitional periods to allow countries some leeway in complying
with the WTO rules.
The final
phase of accession involves bilateral negotiations between the applicant nation
and other working party members regarding the concessions and commitments on
tariff levels and market access for goods and services. The new member's
commitments are to apply equally to all WTO members under normal
non-discrimination rules, even though they are negotiated bilaterally.
When the
bilateral talks conclude, the working party sends to the general council or
ministerial conference an accession package, which includes a summary of all
the working party meetings, the Protocol of Accession (a draft membership
treaty), and lists ("schedules") of the member-to-be's commitments.
Once the general council or ministerial conference approves of the terms of
accession, the applicant's parliament must ratify the Protocol of Accession
before it can become a member. Some countries may have faced tougher and a much
longer accession process due to challenges during negotiations with other WTO
members, such as Vietnam, whose negotiations took more than 11 years before it
became official member in January 2007.
Members and observers
The WTO
has 160 members and 24 observer governments. In addition to states, the
European Union is a member. WTO members do not have to be full sovereign
nation-members. Instead, they must be a customs territory with full autonomy in
the conduct of their external commercial relations. Thus Hong Kong has been a
member since 1995 (as "Hong Kong, China" since 1997) predating the
People's Republic of China, which joined in 2001 after 15 years of
negotiations.
The
Republic of China (Taiwan) acceded to the WTO in 2002 as "Separate Customs
Territory of Taiwan, Penghu, Kinmen and Matsu" (Chinese Taipei) despite
its disputed status. The WTO Secretariat omits the official titles (such as
Counselor, First Secretary, Second Secretary and Third Secretary) of the
members of Chinese Taipei's Permanent Mission to the WTO, except for the titles
of the Permanent Representative and the Deputy Permanent Representative
As of
2007, WTO member states represented 96.4% of global trade and 96.7% of global
GDP. Iran, followed by Algeria, is the economies with the largest GDP and trade
outside the WTO, using 2005 data. With the exception of the Holy See, observers
must start accession negotiations within five years of becoming observers. A
number of international intergovernmental organizations have also been granted
observer status to WTO bodies. 14 UN member states have no official affiliation
with the WTO.
Agreements
The WTO
oversees about 60 different agreements which have the status of international
legal texts. Member countries must sign and ratify all WTO agreements on
accession. A discussion of some of the most important agreements follows. The
Agreement on Agriculture came into effect with the establishment of the WTO at
the beginning of 1995.
The AoA
has three central concepts, or "pillars": domestic support, market
access and export subsidies. The General Agreement on Trade in Services was
created to extend the multilateral trading system to service sector, in the
same way as the General Agreement on Tariffs and Trade (GATT) provided such a
system for merchandise trade. The agreement entered into force in January 1995.
The Agreement on Trade-Related Aspects of Intellectual Property Rights sets
down minimum standards for many forms of intellectual property (IP) regulation.
It was negotiated at the end of the Uruguay Round of the General Agreement on
Tariffs and Trade (GATT) in 1994.
The
Agreement on the Application of Sanitary and Phytosanitary Measures also known
as the SPS Agreement was negotiated during the Uruguay Round of GATT, and
entered into force with the establishment of the WTO at the beginning of 1995.
Under the SPS agreement, the WTO sets constraints on members' policies relating
to food safety (bacterial contaminants, pesticides, inspection and labeling) as
well as animal and plant health (imported pests and diseases).
The
Agreement on Technical Barriers to Trade is an international treaty of the
World Trade Organization. It was negotiated during the Uruguay Round of the
General Agreement on Tariffs and Trade, and entered into force with the
establishment of the WTO at the end of 1994. The object ensures that technical
negotiations and standards, as well as testing and certification procedures, do
not create unnecessary obstacles to trade" The Agreement on Customs
Valuation, formally known as the Agreement on Implementation of Article VII of
GATT, prescribes methods of customs valuation that Members are to follow.
Chiefly, it adopts the "transaction value" approach.
Organization structure of the WTO
Ministerial conference
General council,
Councils,
Committees and Management bodies
Ministerial
conference:
It is the
authority to make decisions on all matters relating to multilateral trade
agreements. It is the top decision making body of the WTO. It meets at least
once in every two years. There have been seven ministerial conferences.
I) First ministerial conference – held in
Singapore 1996, primary purpose to initiate an international effort among
global trading nations.
II) Second ministerial conference - was
held in Geneva in Switzerland. III) Third
ministerial conference - was held in Seattle in Washington
IV) Fourth ministerial conference - was held
in Doha in Persian Gulf Nation of Qatar. V) Fifth ministerial conference - was held in Cancun, Mexico.
VI) Sixth ministerial conference - held in
Hong Kong.
VII) Seventh ministerial conference - held
in Geneva, Switzerland
2. General council:
The general
council has other forms like dispute settlement body and trade policy reviews
body.
Councils:
I. Council for trade in goods II. Council for trade
in services
III. Council for trade related aspects of
intellectual property rights.
Committee
and management bodies:
The
general council delegates powers, responsibilities and authorities to these
bodies.
Committee on trade and development
II. Committee on balance of balance of payments
III. Committee on budget, finance and administration.
Multilateral agreements
Multilateralism -
Coordination mechanism for achieving mutually beneficial trade outcomes (response to a coordination
failure, i.e.( to successive retaliations)
WTO’s Parts
GATT: to reduce
trade barriers and to create more comprehensive and enforceable world trade rules.
GATS: General
Agreement on Trade in Services (National Treatment for Service Firms)
TRIPs: Agreement
is Trade Related Aspects of Intellectual Property Rights (Enforce Patents, Copyrights, and Trademarks)
TRIMs: Agreement
on Trade Related Investment Measures, are rules that apply to the domestic regulations a country applies to foreign
investors.
GATTà WTO
World Trade Organization: Rounds
WTO’s Most Basic Principles
MFN = Most Favored Nation
Each
member country should treat all members as well as it treats its “most favored
nation” (i.e., the member that it treats the best)
National Treatment
Once a
product or seller has entered a country, it should be treated the same as
products or sellers that originated inside that country.
GATT-WTO: Comparison
GATT (general agreement on tariffs and trade)
GATT is a
multilateral trade agreement with overseas and it has been labeled the
locomotive that powers international conference. Created in January 1948 is
intended to achieve a broad, multilateral and free worldwide system of trading.
Basic principles of GATT:
1. Member
countries will consult each other concerning trade problems.
It provides a framework for negotiation and embodies
results of negotiations in a legal environment.
Trade should conduct on a non-discriminatory basis.
Objectives of GATT:
To provide equal opportunities to all countries in
international market for trading purpose.
To increase the effective demand.
To provide amicable solution to the disputes
related to international trade.
To ensure a better living standards in the world as
a whole.
Four Terms from Trade Law
o Non-discrimination
o Reciprocity
o Market access
o Fair
competition
Trade Agreements
Unilateral Trade Agreement:
A trade
agreement joins two or more states in a joint commitment to expand their trade.
Normally, this includes domestic structural reforms such as lowering tariffs
and reducing bureaucratic regulations.
Bilateral Trade Agreement
Bilateral
Trade Agreements are between on two nations at a time. They are fairly easy to
negotiate, and give those two nations favored trading status between each
other.
Multilateral Trade Agreement:
Multilateral
Trade Agreement is between many nations at one time. For this reason, they are
very complicated to negotiate, but are very powerful once all parties sign the
agreement. The primary benefit of multilateral agreements is that all nations
get treated equally
Example: The Doha round of trade agreements
is a multilateral trade agreement between
all 149 members of the World Trade Organization.
Plurilateral agreement:
It is an
agreement between more than two countries, but not a great many, which would be
multilateral agreement. A plurilateral agreement implies that member countries
would be given the choice to agree to new rules on a voluntary basis.
What are the challenges to managing a global
business?
Developing
organization and human resource strategies across multiple borders should not
simply be a matter of adapting a domestic model to accommodate changes in
distance and global scale. Starting with a global mindset discussed earlier,
you will have to develop a fresh perspective in order to take into
consideration the unique challenges of doing business globally.
Human Resource Management Issues
There are
certain human resource management issues that are particular for the global
enterprise. The key issues involve staffing policies, such as selecting the
right people with the right mixture of local versus home experience; managing
the expatriate manager; and dealing with particular problems like repatriation.
Others issues include understanding the challenges of living and working
overseas, performance appraisals from a distance, training and management
development, compensation packages, and labor relations and organized labor
laws.
Finally,
it is very important to remain focused on being the market leader. As Susanna
Kass, a CEO who served for international operations at eBay explains, “We are
not looking to be in twenty-four markets all at the same time. We are looking
to have a very successful community for every market we enter. So it’s more
important to us to be the leader in the market we are in versus being in every
continent.”
Managing Accounting and Control Issues
We
examine two key financial issues. First, we look at the accounting issues.
Doing business in different countries means differences in accounting
standards. But this also includes differences in relationships between business
and capital providers, which can place restrictions on raising money or
borrowing locally through individual investors, financing community (banks,
investment banks, venture capital), and the government.
Other
accounting issues include inflation-accounting, differences in multinational
taxation, U.S. taxation of foreign-source income, and determining corporate
income tax and indirect taxes, such as the value-added tax (VAT), withholding
tax, and miscellaneous taxes on business transactions.
The
second financial issue focuses on managing foreign exchange rate movement risk.
Foreign exchange rate exposure is defined as the risk that future changes in a
country’s exchange rate will hurt the venture’s operating income.
There are
five types of exposure to foreign exchange risk. The greatest risk is from
transaction exposure, the net cash flows from individual transactions. It is
affected by fluctuations in foreign exchange values; ventures need to think
about this before establishing an invoice policy (what currency), and pricing
strategies (how much).
Other
risks include translation exposure; the impact of currency exchange rates on
the reported consolidated financial statements; operating exposure; long-term
effect of changes in exchange rates on future prices, sales, and costs; tax
exposure, which is determined by each country; and finally, interest rate
exposure, which is the difference and sensitivity to the value of the London
Interbank Offered Rate (LIBOR).
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