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Mulilateral Trade nogotiations & Agreements VII & IX

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:

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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