Trading into the Future

WTOThe World Trade Organization

2nd editionRevised

March 2001

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A word of caution: the fine print

While every effort has been made to ensure the accuracy of the text in this booklet, it cannot be taken as an official legal interpretation of the agree-ments.

In addition, some simplifications are used in order to keep the text simple and clear. In particular, the words “country” and “nation” are frequentlyused to describe WTO members, whereas a few members are officially “customs territories”, and not necessarily countries in the usual sense of the word(see list of members). The same applies when participants in trade negotiations are called “countries” or “nations”.

Where there is little risk of misunderstanding, the word “member” is dropped from “member countries (nations, governments)”, for example in thedescriptions of the WTO agreements. Naturally, the agreements and commitments do not apply to non-members.

In some parts of the text, GATT is described as an “international organization”. The phrase reflects GATT’s de facto role before the WTO was creat-ed, and it is used simplistically here to help readers understand that role. As the text points out, this role was always ad hoc, without a proper legal foun-dation. International law did not recognize GATT as an organization. For simplicity, the text uses the term “GATT members”. Officially, GATT signatorieswere “contracting parties”.

Abbreviations

PSE Producer subsidy equivalent (agriculture)PSI Pre-shipment inspectionS&D Special and differential treatment (for developing countries)SAARC South Asian Association for Regional CooperationSDR Special Drawing Rights (IMF)SELA Latin American Economic SystemSPS Sanitary and phytosanitary measuresTBT Technical barriers to tradeTMB Textiles Monitoring BodyTPRB Trade Policy Review BodyTPRM Trade Policy Review MechanismTRIMs Trade-related investment measuresTRIPS Trade-related aspects of intellectual property rightsUN United NationsUNCTAD UN Conference on Trade and DevelopmentUNDP UN Development ProgrammeUNEP UN Environment ProgrammeUPOV International Union for the Protection of New Varieties

of PlantsUR Uruguay RoundVER Voluntary export restraintVRA Voluntary restraint agreementWCO World Customs OrganizationWIPO World Intellectual Property OrganizationWTO World Trade Organization

For a comprehensive list of abbreviations and glossary of terms used ininternational trade, see, for example:Walter Goode, Dictionary of Trade Policy Terms, Centre for InternationalEconomic Studies, University of Adelaide, 1997.

This and many other publications on the WTO and trade are available from:WTO Publications, World Trade Organization, Centre William Rappard,Rue de Lausanne 154, CH–(1211 Geneva, Switzerland.Tel (+41–22) 739 52 08 / 739 53 08. Fax: (+41-22) 739 57 92e-mail: publications@wto.org

Some of the abbreviations and acronyms used in the WTO:

ACP African, Caribbean and Pacific Group (Lomé Convention)AD, A-D Anti-dumping measuresAFTA ASEAN Free Trade AreaAMS Aggregate measurement of support (agriculture)APEC Asia-Pacific Economic CooperationASEAN Association of Southeast Asian NationsATC Agreement on Textiles and ClothingCCC (former) Customs Co-operation Council (now WCO)CER [Australia New Zealand] Closer Economic Relations

[Trade Agreement] (also ANCERTA)COMESA Common Market for Eastern and Southern AfricaCTD Committee on Trade and DevelopmentCTE Committee on Trade and EnvironmentCVD Countervailing duty (subsidies)DSB Dispute Settlement BodyDSU Dispute Settlement UnderstandingEC European CommunitiesEFTA European Free Trade AssociationEU European Union (officially European Communities in WTO)FAO Food and Agriculture OrganizationGATS General Agreement on Trade in ServicesGATT General Agreement on Tariffs and TradeGSP Generalized System of PreferencesHS Harmonized Commodity Description and Coding SystemICITO Interim Commission for the International

Trade OrganizationILO International Labour OrganizationIMF International Monetary FundITC International Trade CentreITO International Trade OrganizationMERCOSUR Southern Common MarketMFA Multifibre Arrangement (replaced by ATC)MFN Most-favoured-nationMTN Multilateral trade negotiationsNAFTA North American Free Trade Agreement

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Contents

Chapter 1 – Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41. What is the World Trade Organization? . . . . . . . . . . . . . . . . . . . 42. Principles of the trading system . . . . . . . . . . . . . . . . . . . . . . . . . 53. The case for open trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84. Roots: from Havana to Marrakesh . . . . . . . . . . . . . . . . . . . . . . . 95. The Uruguay Round . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126. WTO and GATT: are they the same? . . . . . . . . . . . . . . . . . . . . . 14

Chapter 2 – The Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151. Overview: a navigational guide . . . . . . . . . . . . . . . . . . . . . . . . . 152. Tariffs: more bindings and closer to zero . . . . . . . . . . . . . . . . . . 163. Agriculture: fairer markets for farmers . . . . . . . . . . . . . . . . . . . . 174. Textiles: back in the mainstream . . . . . . . . . . . . . . . . . . . . . . . . 205. Services: rules for growth and investment . . . . . . . . . . . . . . . . . 216. Intellectual property: protection and enforcement . . . . . . . . . . . 257. Anti-dumping, subsidies, safeguards: contingencies, etc . . . . . . 298. Non-tariff barriers: Technicalities, red tape, etc . . . . . . . . . . . . . 339. Plurilaterals: of minority interest . . . . . . . . . . . . . . . . . . . . . . . . 36

10. Trade policy reviews: ensuring transparency . . . . . . . . . . . . . . . 37

Chapter 3 – Settling disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381. The WTO’s most individual contribution . . . . . . . . . . . . . . . . . . 382. The panel process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413. Case study: the timetable in practice . . . . . . . . . . . . . . . . . . . . . 42

Chapter 4 – Beyond the Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432. Already committed: the built-in agenda . . . . . . . . . . . . . . . . . . . 443. Regionalism: friends or rivals? . . . . . . . . . . . . . . . . . . . . . . . . . . 454. The environment: a new high profile . . . . . . . . . . . . . . . . . . . . . 465. Investment, competition, procurement, simpler procedures . . . . 506. Electronic commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 517. Labour standards: not on the agenda . . . . . . . . . . . . . . . . . . . . 51

Chapter 5 – Developing countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 521. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543. WTO technical cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 554. Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 565. Q&A A declaration of independence . . . . . . . . . . . . . . . . . . . . . 58

Chapter 6 – The Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601. Whose WTO is it anyway? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602. Membership, alliances and bureaucracy . . . . . . . . . . . . . . . . . . 633. The Secretariat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 664. Special policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Members and observers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

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1. What is the World TradeOrganization?

The World Trade Organization (WTO) is theonly international body dealing with the rules oftrade between nations. At its heart are the WTOagreements, negotiated and signed by the bulkof the world’s trading nations. These documentsprovide the legal ground-rules for internationalcommerce. They are essentially contracts, bind-ing governments to keep their trade policieswithin agreed limits. Although negotiated andsigned by governments, the goal is to help pro-ducers of goods and services, exporters, andimporters conduct their business.

Three main purposes

The system’s overriding purpose is to helptrade flow as freely as possible — so long asthere are no undesirable side-effects. That partlymeans removing obstacles. It also means ensur-ing that individuals, companies and governmentsknow what the trade rules are around the world,and giving them the confidence that there will beno sudden changes of policy. In other words, therules have to be “transparent” and predictable.

Because the agreements are drafted andsigned by the community of trading nations,often after considerable debate and controversy,one of the WTO’s most important functions is toserve as a forum for trade negotiations.

A third important side to the WTO’s work isdispute settlement. Trade relations often involveconflicting interests. Contracts and agreements,including those painstakingly negotiated in theWTO system, often need interpreting. The mostharmonious way to settle these differences isthrough some neutral procedure based on anagreed legal foundation. That is the purposebehind the dispute settlement process writteninto the WTO agreements.

Born in 1995, but not so young

The WTO began life on 1 January 1995, butits trading system is half a century older. Since1948, the General Agreement on Tariffs andTrade (GATT) had provided the rules for thesystem. The second ministerial meeting, held inGeneva in May 1998, included a celebration ofthe 50th anniversary of the system.

It did not take long for the GeneralAgreement to give birth to an unofficial, de factointernational organization, also known informallyas GATT. Over the years GATT evolved throughseveral rounds of negotiations.

The latest and largest round, was theUruguay Round which lasted from 1986 to 1994and led to the WTO’s creation. Whereas GATThad mainly dealt with trade in goods, the WTOand its agreements now cover trade in services,and in traded inventions, creations and designs(intellectual property).

Chapter 1

Basics

‘[The Uruguay Round] will strengthen theworld economy and lead to more trade,investment, employment and incomegrowth throughout the world.’

Ministerial Declaration,concluding Uruguay Round,

Marrakesh, April 1994

’Multilateral’ trading system ...

... i.e. the system operated by the WTO. Mostnations — including almost all the main tradingnations — are members of the system. But someare not, so “multilateral” is used to describe thesystem instead of “global” or “world”.

In WTO affairs, “multilateral” also contrasts withactions taken regionally or by other smaller groupsof countries. (This is different from the word’s use inother areas of international relations where, forexample, a “multilateral” security arrangement canbe regional.)

Why is it called ’most-favoured’?

The name sounds like a contradiction. It suggests some kind of special treatment forone particular country, but in the WTO it actually means non-discrimination — treat-ing virtually everyone equally.

What happens under the WTO is this. Each member treats all the other membersequally as “most-favoured” trading partners. If a country improves the benefits that itgives to one trading partner, it has to give the same “best” treatment to all the otherWTO members so that they all remain “most-favoured”.

Most-favoured nation (MFN) status did not always mean equal treatment. In the 19thCentury, when a number of early bilateral MFN treaties were signed, being includedamong a country’s “most-favoured” trading partners was like being in an exclusiveclub because only a few countries enjoyed the privilege. Now, when most countriesare in the WTO, the MFN club is no longer exclusive. The MFN principle ensures thateach country treats its over-100 fellow-members equally.

But there are some exceptions ...

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2. Principles of the tradingsystem

The WTO agreements are lengthy and com-plex because they are legal texts covering a widerange of activities. They deal with: agriculture,textiles and clothing, banking, telecommunica-tions, government purchases, industrial stan-dards, food sanitation regulations, intellectualproperty, and much more. But a number of sim-ple, fundamental principles run throughout all ofthese documents. These principles are the foun-dation of the multilateral trading system.

A closer look at these principles:

The principles

The trading system should be ...

• without discrimination — a countryshould not discriminate between itstrading partners (they are all, equally,granted “most-favoured-nation” orMFN status); and it should not discrimi-nate between its own and foreign prod-ucts, services or nationals (they aregiven “national treatment”);

• freer — with barriers coming downthrough negotiation;

• predictable — foreign companies,investors and governments should beconfident that trade barriers (includingtariffs, non-tariff barriers and othermeasures) should not be raised arbitrar-ily; more and more tariff rates and mar-ket-opening commitments are “bound”in the WTO;

• more competitive — by discouraging“unfair” practices such as export subsi-dies and dumping products at belowcost to gain market share;

• more beneficial for less developedcountries — by giving them more timeto adjust, greater flexibility, and specialprivileges.

Trade without discrimination

1. Most-favoured-nation (MFN):treating other people equally

Under the WTO Agreements, countries can-not normally discriminate between their tradingpartners. Grant someone a special favour (suchas a lower customs duty rate for one of theirproducts) and you have to do the same for allother WTO members.

This principle is known as most-favoured-nation (MFN) treatment (see box). It is so impor-tant that it is the first article of the GeneralAgreement on Tariffs and Trade (GATT), whichgoverns trade in goods. MFN is also a priority inthe General Agreement on Trade in Services(GATS) (Article 2) and the Agreement on Trade-Related Aspects of Intellectual Property Rights(TRIPS) (Article 4), although in each agreementthe principle is handled slightly differently.Together, those three agreements cover all threemain areas of trade handled by the WTO.

Some exceptions are allowed. For example,countries within a region can set up a free tradeagreement that does not apply to goods fromoutside the group. Or a country can raise barriersagainst products from specific countries that areconsidered to be traded unfairly. And in services,countries are allowed, in limited circumstances, todiscriminate. But the agreements only permitthese exceptions under strict conditions. In gene-ral, MFN means that every time a country lowers atrade barrier or opens up a market, it has to do sofor the same goods or services from all its tradingpartners — whether rich or poor, weak or strong.

2. National treatment: Treatingforeigners and locals equally

Imported and locally-produced goodsshould be treated equally — at least after theforeign goods have entered the market. Thesame should apply to foreign and domestic ser-vices, and to foreign and local trademarks, copy-rights and patents. This principle of “nationaltreatment” (giving others the same treatment asone’s own nationals) is also found in all thethree main WTO agreements (Article 3 of GATT,Article 17 of GATS and Article 3 of TRIPS),although once again the principle is handledslightly differently in each of these.

National treatment only applies once aproduct, service or item of intellectual propertyhas entered the market. Therefore, charging cus-toms duty on an import is not a violation ofnational treatment even if locally-producedproducts are not charged an equivalent tax.

Freer trade:gradually, through negotiation

Lowering trade barriers is one of the mostobvious means of encouraging trade. The bar-riers concerned include customs duties (or tariffs)and measures such as import bans or quotasthat restrict quantities selectively. From time totime other issues such as red tape and exchangerate policies have also been discussed.

Since GATT’s creation in 1947-48 therehave been eight rounds of trade negotiations. Atfirst these focused on lowering tariffs (customsduties) on imported goods. As a result of thenegotiations, by the late 1980s industrial coun-tries’ tariff rates on industrial goods had fallensteadily to about 6.3%.

But by the 1980s, the negotiations hadexpanded to cover non-tariff barriers on goods,and to the new areas such as services and intel-lectual property.

Opening markets can be beneficial, but italso requires adjustment. The WTO agreementsallow countries to introduce changes gradually,through “progressive liberalization”. Developingcountries are usually given longer to fulfil theirobligations.

Predictability: through binding

Sometimes, promising not to raise a tradebarrier can be as important as lowering one,because the promise gives businesses a clearerview of their future opportunities. With stabilityand predictability, investment is encouraged,jobs are created and consumers can fully enjoythe benefits of competition — choice and lowerprices. The multilateral trading system is anattempt by governments to make the businessenvironment stable and predictable.

In the WTO, when countries agree to opentheir markets for goods or services, they “bind”their commitments. For goods, these bindingsamount to ceilings on customs tariff rates.Sometimes countries tax imports at rates that arelower than the bound rates. Frequently this is thecase in developing countries. In developed coun-tries the rates actually charged and the boundrates tend to be the same.

A country can change its bindings, but onlyafter negotiating with its trading partners, whichcould mean compensating them for loss of trade.One of the achievements of the Uruguay Roundof multilateral trade talks was to increase theamount of trade under binding commitments(see table). In agriculture, 100% of productsnow have bound tariffs. The result of all this: asubstantially higher degree of market security fortraders and investors.

The system tries to improve predictabilityand stability in other ways as well. One way is todiscourage the use of quotas and other measuresused to set limits on quantities of imports— administering quotas can lead to more red-tape and accusations of unfair play. Another is tomake countries’ trade rules as clear and public(“transparent”) as possible. Many WTO agree-ments require governments to disclose their poli-cies and practices publicly within the country orby notifying the WTO. The regular surveillance ofnational trade policies through the Trade PolicyReview Mechanism provides a further means ofencouraging transparency both domestically andat the multilateral level.

The Uruguay Roundincreased bindings

Percentage, tariffs bound before and afterthe 1986-94 talks

Before After

Developed countries 78 99

Developing countries 21 73

Transition economies 73 98

(These are tariff lines, so percentages are notweighted according to trade volume or value)

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Promoting fair competition

The WTO is sometimes described as a “freetrade” institution, but that is not entirely accu-rate. The system does allow tariffs and, in limitedcircumstances, other forms of protection. Moreaccurately, it is a system of rules dedicated toopen, fair and undistorted competition.

The rules on non-discrimination — MFNand national treatment — are designed tosecure fair conditions of trade. So too are thoseon dumping (exporting at below cost to gainmarket share) and subsidies. The issues are com-

plex, and the rules try to establish what is fair orunfair, and how governments can respond, inparticular by charging additional import dutiescalculated to compensate for damage caused byunfair trade.

Many of the other WTO agreements aim tosupport fair competition: in agriculture, intellec-tual property, services, for example. The agree-ment on government procurement (a “plurilater-al” agreement because it is signed by only a fewWTO members) extends competition rules to pur-chases by thousands of “government” entities inmany countries. And so on.

Encouraging developmentand economic reform

It is widely recognized by economists andtrade experts that the WTO system contributes todevelopment. It is also recognized that the least-developed countries need flexibility in the timethey take to implement the agreements. And theagreements themselves inherit the earlier provi-sions of GATT that allow for special assistanceand trade concessions for developing countries.

Over three quarters of WTO members aredeveloping countries and countries in transitionto market economies. During the seven and ahalf years of the Uruguay Round, over 60 ofthese countries implemented trade liberalizationprogrammes autonomously. At the same time,developing countries and transition economieswere much more active and influential in theUruguay Round negotiations than in any pre-vious round.

This trend effectively killed the notion thatthe trading system existed only for industrializedcountries. It also changed the previous emphasison exempting developing countries from certainGATT provisions and agreements.

At the end of the Uruguay Round, develop-ing countries were prepared to take on most ofthe obligations that are required of developedcountries. But the agreements did give themtransition periods to adjust to the more unfamil-iar and, perhaps, difficult WTO provisions —particularly so for the poorest, “least-developed”countries. A ministerial decision adopted at theend of the round gives least developed countriesextra flexibility in implementing WTO agree-ments. It says better-off countries should accele-rate implementing market access commitmentson goods exported by the least-developed coun-tries, and it seeks increased technical assistancefor them.

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World trade and production have accelerated

Both trade and GDP fell in the late 1920s, before bottoming out in 1932. After WorldWar II, both have risen exponentially, most of the time with trade outpacing GDP.(1950 = 100. Trade and GDP: log scale)

3. The case for open trade

The economic case for an open trading sys-tem based upon multilaterally agreed rules issimple enough and rests largely on commercialcommon sense. But it is also supported by evi-dence: the experience of world trade and eco-nomic growth since the Second World War.Tariffs on industrial products have fallen steeplyand are now close to 4% on average in industri-al countries by 1 January 1999. During the firsttwo decades after the war, world economicgrowth averaged about 5% per year, a high ratethat was partly the result of lower trade barriers.World trade grew even faster, averaging about8% during the period.

The data show a definite statistical linkbetween freer trade and economic growth.Economic theory points to strong reasons for thelink. All countries, including the poorest, haveassets — human, industrial, natural, financial —which they can employ to produce goods andservices for their domestic markets or to competeoverseas. Economics tells us that we can benefitwhen these goods and services are traded.

Simply put, the principle of “comparative advan-tage” says that countries prosper first by takingadvantage of their assets in order to concentrateon what they can produce best, and then bytrading these products for products that othercountries produce best.

Firms do exactly that quite naturally on thedomestic market. But what about the interna-tional market? Most firms recognize that the big-ger the market the greater their potential— they can expand until they are at their mostefficient size, and they can have access to largenumbers of customers.

In other words, liberal trade policies— policies that allow the unrestricted flow ofgoods and services — multiply the rewards thatresult from producing the best products, with thebest design, at the best price.

But success in trade is not static. The abilityto compete well in particular products can shiftfrom company to company when the marketchanges or new technologies make cheaper andbetter products possible. Experience shows thatcompetitiveness can also shift between wholecountries. A country that may have enjoyed anadvantage because of lower labour costs orbecause it had good supplies of some naturalresources, could also become uncompetitive insome goods or services as its economy develops.However, with the stimulus of an open economy,the country can move on to become competitivein some other goods or services. This is normallya gradual process.

When the trading system is allowed tooperate without the constraints of protectionism,firms are encouraged to adapt gradually and in arelatively painless way. They can focus on newproducts, find a new “niche” in their currentarea or expand into new areas.

The alternative is protection against compe-tition from imports, and perpetual governmentsubsidies. That leads to bloated, inefficient com-panies supplying consumers with outdated, unat-tractive products. Ultimately, factories close andjobs are lost despite the protection and subsidies.If other governments around the world pursuethe same policies, markets contract and worldeconomic activity is reduced. One of the objec-tives of the WTO is to prevent such a self-defeat-ing and destructive drift into protectionism.

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Nobel laureate Paul Samuelson was oncechallenged by the mathematician

Stanislaw Ulam to “name me one proposi-tion in all of the social sciences which is

both true and non-trivial.”It took Samuelson several years to findthe answer — comparative advantage.

“That it is logically true need not beargued before a mathematician; that it isnot trivial is attested by the thousands ofimportant and intelligent men who have

never been able to grasp the doctrine forthemselves or to believe it after it was

explained to them.”

The GATT trade rounds

Year Place/ Subjects covered Countriesname

1947 Geneva Tariffs 23

1949 Annecy Tariffs 13

1951 Torquay Tariffs 38

1956 Geneva Tariffs 26

1960-1961 Geneva Tariffs 26(DillonRound)

1964-1967 Geneva Tariffs and anti-dumping measures 62(KennedyRound)

1973-1979 Geneva Tariffs, non-tariff measures, 102(Tokyo “framework” agreementsRound)

1986-1994 Geneva Tariffs, non-tariff measures, 123(Uruguay rules, services, intellectual property,Round) dispute settlement, textiles, agriculture,

creation of WTO, etc

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4. Roots: from Havanato Marrakesh

The WTO’s creation on 1 January 1995marked the biggest reform of international tradesince after the Second World War. It alsobrought to reality — in an updated form — thefailed attempt to create an International TradeOrganization in 1948. Up to 1994, the tradingsystem came under GATT, salvaged from theaborted attempt to create the ITO. GATT helpedestablish a strong and prosperous multilateraltrading system that became more and moreliberal through rounds of trade negotiations.But by the 1980s the system needed a thoroughoverhaul. This led to the Uruguay Round, andultimately to the WTO.

GATT: ’provisional’ for almost halfa century

From 1948 to 1994, the General Agreementon Tariffs and Trade (GATT) provided the rulesfor much of world trade and presided over peri-ods that saw some of the highest growth rates ininternational commerce. It seemed well-estab-lished, but throughout those 47 years, it was aprovisional agreement and organization.

The original intention was to create a thirdinstitution handling international economic co-operation, to join the “Bretton Woods” institu-

tions now known as the World Bank and theInternational Monetary Fund. The complete plan,as envisaged by over 50 countries, was to createan International Trade Organization (ITO) as aspecialized agency of the United Nations. Thedraft ITO Charter was ambitious. It extendedbeyond world trade disciplines, to include ruleson employment, commodity agreements, restric-tive business practices, international investment,and services.

Even before the charter was finallyapproved, 23 of the 50 participants decided in1946 to negotiate to reduce and bind customstariffs. With the Second World War only recentlyended, they wanted to give an early boost totrade liberalization, and to begin to correct thelarge legacy of protectionist measures whichremained in place from the early 1930s.

This first round of negotiations resulted in45,000 tariff concessions affecting $10 billion oftrade, about one fifth of the world’s total. The23 also agreed that they should accept some ofthe trade rules of the draft ITO Charter. This,they believed, should be done swiftly and “provi-sionally” in order to protect the value of the tar-iff concessions they had negotiated. The com-bined package of trade rules and tariffconcessions became known as the GeneralAgreement on Tariffs and Trade. It entered intoforce in January 1948, while the ITO Charter wasstill being negotiated. The 23 became foundingGATT members (officially, “contracting parties”).

Comparative advantage

What did the classicaleconomist DavidRicardo mean when hecoined the term com-parative advantage?

Suppose country A isbetter than country B

at making automobiles, and country B isbetter than country A at making bread.It is obvious (the academics would say“trivial”) that both would benefit ifA specialized in automobiles, B specializedin bread and they traded their products.That is a case of absolute advantage.

But what if a country is bad at makingeverything? Will trade drive all producersout of business? The answer, accordingto Ricardo, is no. The reason is the princi-ple of comparative advantage, arguablythe single most powerful insight ineconomics.

According to the principle of comparativeadvantage, countries A and B still stand tobenefit from trading with each other evenif A is better than B at making everything,both automobiles and bread. If A is muchmore superior at making automobiles andonly slightly superior at making bread,then A should still invest resources inwhat it does best — producing automo-biles — and export the product to B.B should still invest in what it does best— making bread — and export thatproduct to A, even if it is not as efficientas A. Both would still benefit from thetrade. A country does not have to be bestat anything to gain from trade. That iscomparative advantage.

The theory is one of the most widelyaccepted among economists. It is also oneof the most misunderstood among non-economists because it is confused withabsolute advantage. It is often claimed,for example, that some countries have nocomparative advantage in anything. Thatis virtually impossible. Think about it ...

Although the ITO Charter was finally agreedat a UN Conference on Trade and Employment inHavana in March 1948, ratification in somenational legislatures proved impossible. The mostserious opposition was in the US Congress, eventhough the US government had been one of thedriving forces. In 1950, the United States’ gov-ernment announced that it would not seekCongressional ratification of the Havana Charter,and the ITO was effectively dead. Even though itwas provisional, the GATT remained the onlymultilateral instrument governing internationaltrade from 1948 until the WTO was establishedin 1995.

For almost half a century, the GATT’s basiclegal text remained much as it was in 1948.There were additions in the form of “plurilateral”agreements (i.e. with voluntary membership),and efforts to reduce tariffs further continued.Much of this was achieved through a series ofmultilateral negotiations known as “traderounds” — the biggest leaps forward in interna-tional trade liberalization have come throughthese rounds which were held under GATT’s aus-pices.

In the early years, the GATT trade roundsconcentrated on further reducing tariffs. Then,the Kennedy Round in the mid-sixties broughtabout a GATT Anti-Dumping Agreement. TheTokyo Round during the seventies was the firstmajor attempt to tackle trade barriers that donot take the form of tariffs, and to improve thesystem. The eighth, the Uruguay Round of 1986-94, was the latest and most extensive of all. Itled to the WTO and a new set of agreements.

The Tokyo Round:a first try to reform the system

The Tokyo Round lasted from 1973 to1979, with 102 countries participating. It contin-ued GATT’s efforts to progressively reduce tariffs.The results included an average one-third cut incustoms duties in the world’s nine major indus-trial markets, bringing the average tariff onindustrial products down to 4.7%. The tariffreductions, phased in over a period of eightyears, involved an element of “harmonization”— the higher the tariff, the larger the cut, pro-portionally.

In other issues, the Tokyo Round had mixedresults. It failed to come to grips with the funda-mental problems affecting farm trade and alsostopped short of providing a new agreement on“safeguards” (emergency import measures).Nevertheless, a series of agreements on non-tariff barriers did emerge from the negotiations,in some cases interpreting existing GATT rules,in others breaking entirely new ground. In mostcases, only a relatively small number of (mainlyindustrialized) GATT members subscribed tothese agreements and arrangements. Becausethey were not accepted by the full GATT mem-bership, they were often informally called“codes”.

They were not multilateral, but they were abeginning. Several codes were eventuallyamended in the Uruguay Round and turned intomultilateral commitments accepted by all WTOmembers. Only four remained “plurilateral” —those on government procurement, bovine meat,civil aircraft and dairy products. In 1997 WTOmembers agreed to terminate the bovine meatand dairy agreements from the end of the year.

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The Tokyo Round ’codes’

• Subsidies and countervailing measures— interpreting Articles 6, 16 and 23 ofGATT

• Technical barriers to trade — some-times called the Standards Code

• Import licensing procedures• Government procurement• Customs valuation — interpreting

Article 7• Anti-dumping — interpreting Article 6,

replacing the Kennedy Round code• Bovine Meat Arrangement• International Dairy Arrangement• Trade in Civil Aircraft

The trade chiefs

The directors-general of GATT and WTO

• Sir Eric Wyndham White (UK) 1948-68

• Olivier Long (Switzerland) 1968-80

• Arthur Dunkel (Switzerland) 1980-93

• Peter Sutherland (Ireland)GATT 1993-94; WTO 1995

• Renato Ruggiero (Italy) 1995-1999

Trade rounds: progress by package

They are often lengthy — the Uruguay Round took seven and a half years — buttrade rounds can have an advantage. They offer a package approach to trade negoti-ations that can sometimes be more fruitful than negotiations on a single issue.

• The size of the package can mean more benefits because participants can seek andsecure advantages across a wide range of issues.

• In a package, the ability to trade-off different issues can make agreement easier toreach because somewhere in the package there is something for everyone. Thishas political as well as economic implications. Concessions (perhaps in one sector)which are necessary but would otherwise be difficult to defend in domestic politicalterms, can be made more easily in the context of a package because the packagealso contains politically and economically attractive benefits (in other sectors). As aresult, reform in politically-sensitive sectors of world trade can be more feasible inthe context of a global package — reform of agricultural trade was a good exam-ple in the Uruguay Round.

• Developing countries and other less powerful participants have a greater chance ofinfluencing the multilateral system in a trade round than in bilateral relationshipswith major trading nations.

But the wide range of issues that a trade round covers can be both a strength and aweakness, leading to a debate on the effectiveness of multi-sector rounds versussingle-sector negotiations. Recent history is ambiguous. At some stages, the UruguayRound seemed so cumbersome that agreement in every subject by all participatingcountries appeared impossible. Then the round did end successfully in 1993-94, andthis was followed by two years of failure to reach any major agreement in separate,single-sector talks on maritime transport, basic telecommunications and financialservices.

Did this mean that trade rounds were the only route to success? No. In 1997, single-sector talks were concluded successfully in basic telecommunications, informationtechnology equipment and financial services. The debate continues. Whatever theanswer, the reasons are not straightforward. Perhaps success depends on using theright type of negotiation for the particular time and context.

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Did GATT succeed?

GATT was provisional with a limited field ofaction, but its success over 47 years in promot-ing and securing the liberalization of much ofworld trade is incontestable. Continual reduc-tions in tariffs alone helped spur very high ratesof world trade growth during the 1950s and1960s — around 8% a year on average. Andthe momentum of trade liberalization helpedensure that trade growth consistently out-pacedproduction growth throughout the GATT era, ameasure of countries’ increasing ability to tradewith each other and to reap the benefits oftrade. The rush of new members during theUruguay Round demonstrated that the multilat-eral trading system was recognized as an anchorfor development and an instrument of economicand trade reform. But as time passed new prob-lems arose. The Tokyo Round was an attempt totackle some of these but its achievements werelimited. This was a sign of difficult times tocome.

GATT’s success in reducing tariffs to such alow level, combined with a series of economicrecessions in the 1970s and early 1980s, drovegovernments to devise other forms of protectionfor sectors facing increased foreign competition.High rates of unemployment and constant fac-tory closures led governments in Western Europeand North America to seek bilateral market-shar-ing arrangements with competitors and toembark on a subsidies race to maintain theirholds on agricultural trade. Both these changesundermined GATT’s credibility and effectiveness.

The problem was not just a deterioratingtrade policy environment. By the early 1980s theGeneral Agreement was clearly no longer as rele-vant to the realities of world trade as it had beenin the 1940s. For a start, world trade hadbecome far more complex and important than 40years before: the globalization of the world econ-omy was underway, trade in services — not cov-ered by GATT rules — was of major interest tomore and more countries, and internationalinvestment had expanded. The expansion of ser-vices trade was also closely tied to furtherincreases in world merchandise trade. In otherrespects, GATT had been found wanting. Forinstance, in agriculture, loopholes in the multilat-eral system were heavily exploited, and efforts atliberalizing agricultural trade met with little suc-

cess. In the textiles and clothing sector, anexception to GATT’s normal disciplines wasnegotiated in the 1960s and early 1970s, lead-ing to the Multifibre Arrangement. Even GATT’sinstitutional structure and its dispute settlementsystem were giving cause for concern.

These and other factors convinced GATTmembers that a new effort to reinforce andextend the multilateral system should beattempted. That effort resulted in the UruguayRound, the Marrakesh Declaration, and the cre-ation of the WTO.

5. The Uruguay Round

It took seven and a half years, almost twicethe original schedule. By the end, 123 countrieswere taking part. It covered almost all trade,from toothbrushes to pleasure boats, from bank-ing to telecommunications, from the genes ofwild rice to AIDS treatments. It was quite simplythe largest trade negotiation ever, and mostprobably the largest negotiation of any kind inhistory.

At times it seemed doomed to fail. But inthe end, the Uruguay Round brought about thebiggest reform of the world’s trading systemsince GATT was created at the end of the SecondWorld War. And yet, despite its troubledprogress, the Uruguay Round did see some earlyresults. Within only two years, participants hadagreed on a package of cuts in import duties ontropical products — which are mainly exportedby developing countries. They had also revisedthe rules for settling disputes, with some mea-sures implemented on the spot. And they calledfor regular reports on GATT members’ trade poli-cies, a move considered important for makingtrade regimes transparent around the world.

A round to end all rounds?

The seeds of the Uruguay Round were sownin November 1982 at a ministerial meeting ofGATT members in Geneva. Although the minis-ters intended to launch a major new negotiation,the conference stalled on the issue of agricultureand was widely regarded as a failure. In fact, thework programme that the ministers agreedformed the basis for what was to become theUruguay Round negotiating agenda.

Nevertheless, it took four more years ofexploring, clarifying issues and painstaking con-sensus-building, before ministers agreed tolaunch the new round. They did so in September1986, in Punta del Este, Uruguay. They eventual-ly accepted a negotiating agenda which covered

virtually every outstanding trade policy issue. Thetalks were going to extend the trading systeminto several new areas, notably trade in servicesand intellectual property, and to reform trade inthe sensitive sectors of agriculture and textiles.All the original GATT articles were up for review.It was the biggest negotiating mandate on tradeever agreed, and the ministers gave themselvesfour years to complete it.

Two years later, in December 1988, minis-ters met again in Montreal, Canada for whatwas supposed to be an assessment of progressat the round’s half-way point. The purpose wasto clarify the agenda for the remaining twoyears, but the talks ended in a deadlock that wasnot resolved until officials met more quietly inGeneva the following April.

Despite the difficulty, during the Montrealmeeting, ministers did agree a package of earlyresults. These included some concessions onmarket access for tropical products — aimed atassisting developing countries — as well as astreamlined dispute settlement system, and theTrade Policy Review Mechanism which providedfor the first comprehensive, systematic and regu-lar reviews of national trade policies and prac-tices of GATT members. The round was sup-posed to end when ministers met once more inBrussels, in December 1990. But they disagreedon how to reform agricultural trade and decidedto extend the talks. The Uruguay Round enteredits bleakest period.

Despite the poor political outlook, a consid-erable amount of technical work continued, lead-ing to the first draft of a final legal agreement.This draft “Final Act” was compiled by the thenGATT director general, Mr Arthur Dunkel, whochaired the negotiations at officials’ level. It was

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The agendaThe 15 original Uruguay Round subjects

TariffsNon-tariff barriersNatural resource productsTextiles and clothingAgricultureTropical productsGATT articlesTokyo Round codesAnti-dumpingSubsidiesIntellectual propertyInvestment measuresDispute settlementThe GATT systemServices

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put on the table in Geneva in December 1991.The text fulfilled every part of the Punta del Estemandate, with one exception — it did not con-tain the participating countries’ lists of commit-ments for cutting import duties and openingtheir services markets. The draft became thebasis for the final agreement.

For the following two years, the negotia-tions lurched between impending failure, to pre-dictions of imminent success. Several deadlinescame and went. New points of major conflictemerged to join agriculture: services, marketaccess, anti-dumping rules, and the proposedcreation of a new institution. Differencesbetween the United States and EuropeanCommunities (EU) became central to hopes for afinal, successful conclusion.

In November 1992, the US and EU settledmost of their differences on agriculture in a dealknown informally as the “Blair House accord”.By July 1993 the “Quad” (US, EU, Japan andCanada) announced significant progress in nego-tiations on tariffs and related subjects (“market

The Uruguay Round – Key dates

Sep 86 Punta del Este: launch

Dec 88 Montreal: ministerial mid-term review

Apr 89 Geneva: mid-term review completed

Dec 90 Brussels: “closing” ministerial meetingends in deadlock

Dec 91 Geneva: first draft of Final Act completed

Nov 92 Washington: US and EC achieve “BlairHouse” breakthrough on agriculture

Jul 93 Tokyo: Quad achieve market accessbreakthrough at G7 summit

Dec 93 Geneva: most negotiations end (somemarket access talks remain)

Apr 94 Marrakesh: agreements signed

Jan 95 Geneva: WTO created, agreements takeeffect

access”). It took until 15 December 1993 forevery issue to be finally resolved and for negotia-tions on market access for goods and services tobe concluded (although some final touches werecompleted in talks on market access a few weekslater). On 15 April 1994, the deal was signed byministers from most of the 123 participating gov-ernments at a meeting in Marrakesh, Morocco.

The delay had some merits. It allowed somenegotiations to progress further than would havebeen possible in 1990: for example some aspectsof services and intellectual property, and the cre-ation of the WTO itself. But the task had beenimmense, and negotiation-fatigue was felt intrade bureaucracies around the world. The diffi-culty of reaching agreement on a complete pack-age containing almost the entire range of currenttrade issues led some to conclude that a negotia-tion on this scale would never again be possible.Yet, the Uruguay Round agreements containtimetables for new negotiations on a number oftopics. And by 1996, some countries were open-ly calling for a new round early in the next cen-tury. The response was mixed; but theMarrakesh agreement does already include com-mitments to reopen negotiations on a range ofsubjects at the turn of the century. They are nowunderway.

6. WTO and GATT:are they the same?

No. They are different — the WTO is GATTplus a lot more.

Two GATTs

It is probably best to be clear from the startthat the General Agreement on Tariffs and Trade(GATT) was two things: (1) an internationalagreement, i.e. a document setting out the rulesfor conducting international trade, and (2) aninternational organization created later to sup-port the agreement. The text of the agreementcould be compared to law, the organization waslike parliament and the courts combined in a sin-gle body.

As its history shows, the attempt to create afully fledged international trade agency in the1940s failed. But GATT’s drafters agreed thatthey wanted to use the new rules and disciplines,if only provisionally. Then government officialsneeded to meet to discuss issues related to theagreement, and to hold trade negotiations.These needed secretarial support, leading to thecreation of an ad hoc organization — that con-tinued to exist for almost half a century.

GATT, the international agency, no longerexists. It has now been replaced by the WorldTrade Organization.

GATT, the agreement, does still exist, but itis no longer the main set of rules for interna-tional trade. And it has been updated.

What happened? When GATT was createdafter the Second World War, international com-merce was dominated by trade in goods. Sincethen, trade in services — transport, travel, bank-ing, insurance, telecommunications, transport,consultancy and so on — has become muchmore important. So has trade in ideas — inven-tions and designs, and goods and services incor-porating this “intellectual property”.

The General Agreement on Tariffs andTrade always dealt with trade in goods, and itstill does. It has been amended and incorporatedinto the new WTO agreements. The updatedGATT lives alongside the new GeneralAgreement on Trade in Services (GATS) andAgreement on Trade-Related Aspects ofIntellectual Property Rights (TRIPS). The WTObrings the three together within a single organi-zation, a single set of rules and a single systemfor resolving disputes.

In short, the WTO is not a simple extensionof GATT. It is much more.

So, the GATT is dead,long live the GATT!

While GATT no longer exists as an interna-tional organization, the GATT agreement liveson. The old text is now called “GATT 1947”. Theupdated version is called “GATT 1994”.

Moreover, GATT’s key principles have beenadopted by the agreements on services and intel-lectual property. These include non-discrimina-tion, transparency and predictability. As the moremature WTO developed out of GATT, you couldsay that the child is the father of the man.

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The main differences

• GATT was ad hoc and provisional. TheGeneral Agreement was never ratifiedin members’ parliaments, and it con-tained no provisions for the creation ofan organization.The WTO and its agreements are perma-nent. As an international organization,the WTO has a sound legal basisbecause members have ratified theWTO agreements, and the agreementsthemselves describe how the WTO is tofunction.

• The WTO has “members”. GATT had“contracting parties”, underscoring thefact that officially GATT was a legaltext.

• GATT dealt with trade in goods. TheWTO covers services and intellectualproperty as well.

• The WTO dispute settlement system isfaster, more automatic than the oldGATT system. Its rulings cannot beblocked.

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1. Overview:a navigational guide

The WTO Agreements cover goods, servicesand intellectual property. They spell out the prin-ciples of liberalization, and the permitted excep-tions. They include individual countries’ commit-ments to lower customs tariffs and other tradebarriers, and to open and keep open servicesmarkets. They set procedures for settling dis-putes. They prescribe special treatment for devel-oping countries. They require governments tomake their trade policies transparent by notifyingthe WTO about laws in force and measuresadopted, and through regular reports by the sec-retariat on countries’ trade policies.

The table of contents of “The Results of theUruguay Round of Multilateral TradeNegotiations: The Legal Texts” is a daunting listof about 60 agreements, annexes, decisions andunderstandings. In fact, the agreements fall intoa simple structure.

Three-part broad outline

The agreements for the two largest areas oftrade — goods and services — share a commonthree-part outline, even though the detail issometimes quite different.

• They start with broad principles: the GeneralAgreement on Tariffs and Trade (GATT) (forgoods), and the General Agreement on Tradein Services (GATS). (The agreement on Trade-Related Aspects of Intellectual Property Rights(TRIPS) also falls into this category although atpresent it has no additional parts.)

• Then come extra agreements and annexesdealing with the special requirements of spe-cific sectors or issues.

• Finally, there are the detailed and lengthyschedules (or lists) of commitments made byindividual countries allowing specific foreignproducts or service-providers access to theirmarkets. For GATT, these take the form ofbinding commitments on tariffs for goods ingeneral, and combinations of tariffs and quo-tas for some agricultural goods. For GATS, thecommitments state how much access foreignservice providers are allowed for specific sec-tors, and they include lists of types of serviceswhere individual countries say they are notapplying the “most-favoured-nation” principleof non-discrimination.

Much of the Uruguay Round dealt with thefirst two parts: general principles and principlesfor specific sectors. At the same time, marketaccess negotiations were possible for industrialgoods. Once the principles had been worked out,negotiations could proceed on the commitments

Chapter 2

The Agreements

The ’additional details’

These agreements and annexes deal withthe following specific sectors or issues:

For goods (under GATT)

• Agriculture• Health regulations for farm products

(SPS)• Textiles and clothing• Product standards (TBT)• Investment measures• Anti-dumping measures• Customs valuation methods• Preshipment inspection• Rules of origin• Import licensing• Subsidies and counter-measures• Safeguards

For services (the GATS annexes)

• Movement of natural persons• Air transport• Financial services• Shipping• Telecommunications

for sectors such as agriculture and services.Negotiations after the Uruguay Round havefocused largely on market access commitments:financial services, basic telecommunications, andmaritime transportation (under GATS), and infor-mation technology (under GATT).

Additional agreements

Two other groups of agreements notincluded in the diagram are also important: theagreement on trade policy reviews, and the two“plurilateral” agreements not signed by all mem-bers: civil aircraft and government procurement.

In a nutshellThe basic structure of the WTO Agreements

Goods ServicesIntellectual

Disputesproperty

BasicGATT GATS TRIPS

Disputeprinciples settlement

Additional Other goods Servicesdetails agreements annexes

and annexes

Market access Countries’ Countries’commitments schedules schedules

of commitments of commitments(and MFN

exemptions)

’Binding’ tariffs

The market access schedules are not simplyannouncements of tariff rates. They represent com-mitments not to increase tariffs above the listedrates — the rates are “bound”. For developedcountries, the bound rates are generally the ratesactually charged. Most developing countries havebound the rates somewhat higher than the actualrates charged, so the bound rates serve as ceilings.

Countries can break a commitment (i.e. raise a tariffabove the bound rate), but only with difficulty. Todo so they have to negotiate with the countriesmost concerned and that could result in compensa-tion for trading partners’ loss of trade.

2. Tariffs: more bindingsand closer to zero

The bulkiest result of Uruguay Round arethe 22,500 pages listing individual countries’commitments on specific categories of goodsand services. These include commitments to cutand “bind” their customs duty rates on importsof goods. In some cases, tariffs are being cut tozero — with zero rates also committed in 1997on information technology products. There isalso a significant increase in the number of“bound” tariffs — duty rates that are committedin the WTO and are difficult to raise.

Tariff cuts

Developed countries’ tariff cuts are for themost part being phased in over five years from 1January 1995. The result will be a 40% cut intheir tariffs on industrial products, from an aver-age of 6.3% to 3.8%. The value of importedindustrial products that receive duty-free treat-ment in developed countries will jump from 20%to 44%.

There will also be fewer products chargedhigh duty rates. The proportion of imports intodeveloped countries from all sources facing tar-iffs rates of more than 15% will decline from 7%to 5%. The proportion of developing countryexports facing tariffs above 15% in industrialcountries will fall from 9% to 5%.

The Uruguay Round package has now beenimproved. On 26 March 1997, 40 countriesaccounting for more than 92% of world trade in

information technology products, agreed toeliminate import duties and other charges onthese products by 2000 (by 2005 in a handfulof cases). As with other tariff commitments, eachparticipating country is applying its commitmentsequally to exports from all WTO members (i.e. ona most-favoured-nation basis), even from mem-bers that did not make commitments.

More bindings

Developed countries increased the numberof imports whose tariff rates are “bound” (com-mitted and difficult to increase) from 78% ofproduct lines to 99%. For developing countries,the increase was considerable: from 21% to73%. Economies in transition from central plan-ning increased their bindings from 73% to 98%.This all means a substantially higher degree ofmarket security for traders and investors.

And agriculture ...

Tariffs on all agricultural products are nowbound. Almost all import restrictions that did nottake the form of tariffs, such as quotas, havebeen converted to tariffs — a process known as“tariffication”. This has made markets substan-tially more predictable for agriculture. Previouslymore than 30% of agricultural produce hadfaced quotas or import restrictions. At first, theywere converted to tariffs that represented aboutthe same level of protection as the previousrestrictions, but over six years these tariffs aregradually being reduced. The market access com-mitments on agriculture will also eliminate previ-ous import bans on certain products.

The lists also include countries’ commit-ments to reduce domestic support and exportsubsidies for agricultural products.

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What is this agreement called? There is no legallybinding agreement that sets out the targets for tariffreductions (e.g. by what percentage they were to becut as a result of the Uruguay Round).At the end of the Uruguay Round, individual countrieslisted their commitments in schedules annexed toMarrakesh Protocol to the General Agreement onTariffs and Trade 1994. This is the legally bindingagreement for the reduced tariff rates.

Numerical targets for cutting subsidies and protectionThe reductions in agricultural subsidies and protection agreed in the Uruguay Round.

Only the figures for cutting export subsidies appear in the agreement.

Developed countries Developing countries6 years: 1995-2000 10 years: 1995-2004

Tariffsaverage cut

for all agricultural products –36% –24%minimum cut per product –15% –10%

Domestic supporttotal AMS cuts for sectorbase period: 1986-88) –20% –13%

Exportsvalue of subsidies –36% –24%subsidized quantities(base period: 1986-90) –21% –14%

Least developed countries do not have to make commitments to reduce tariffs or sub-sidies.

The base level for tariff cuts was the bound rate before 1 January 1995; or, for unboundtariffs, the actual rate charged in September 1986 when the Uruguay Round began.

The other figures were targets used to calculate countries’ legally-binding “sched-ules” of commitments.

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“Peace” provisions within the agreementaim to reduce the likelihood of disputes or chal-lenges on agricultural subsidies over a period ofnine years.

Market access: ’tariffs only’, please

The new rule for market access in agricul-tural products is “tariffs only”. Before theUruguay Round, some agricultural imports wererestricted by quotas and other non-tariff mea-sures. These have been replaced by tariffs thatprovide more-or-less equivalent levels of protec-tion — if the previous policy meant domesticprices were 75% higher than world prices, thenthe new tariff could be around 75%. (Convertingthe quotas and other types of measures to tariffsin this way was called “tariffication”.)

The package contained more. It ensured thatquantities imported before the agreement tookeffect could continue to be imported, and it guaran-teed that some new quantities were charged dutyrates that were not prohibitive. This was achievedby a system of “tariff-quotas” — lower tariff ratesfor specified quantities, higher (sometimes muchhigher) rates for quantities that exceed the quota.

3. Agriculture:fairer markets for farmers

The original GATT did apply to agriculturaltrade, but it contained loopholes. For example, itallowed countries to use some non-tariff mea-sures such as import quotas, and to subsidize.Agricultural trade became highly distorted, espe-cially with the use of export subsidies whichwould not normally have been allowed for indus-trial products. The Uruguay Round agreement isa significant first step towards order, fair compe-tition and a less distorted sector. It is beingimplemented over a six year period (10 years fordeveloping countries), that began in 1995.1 January 1995 to 31 December 2000.Participants have agreed to initiate negotiationsfor continuing the reform process one yearbefore the end of the implementation period.

What is this agreement called? Most provisions:Agreement on Agriculture. Commitments on tariffs,tariff quotas, domestic supports, export subsidies: inschedules annexed to the Marrakesh Protocol to theGeneral Agreement on Tariffs and Trade 1994. Also:Agreement on the Application of Sanitary andPhytosanitary Measures, and [Ministerial] Decision onMeasures Concerning the Possible Negative Effects ofthe Reform Programme on Least-Developed and NetFood-Importing Developing Countries. (See also:“Modalities for the establishment of specific bindingcommitments under the reform programme”,MTN.GNG/MA/W/24.)

New rules and commitments

The objective of the Agriculture Agreementis to reform trade in the sector and to make poli-cies more market-oriented. This would improvepredictability and security for importing andexporting countries alike.

The new rules and commitments apply to:• market access — various trade restrictions

confronting imports• domestic support — subsidies and other pro-

grammes, including those that raise or guar-antee farmgate prices and farmers’ incomes

• export subsidies and other methods used tomake exports artificially competitive.

The agreement does allow governments tosupport their rural economies, but preferablythrough policies that cause less distortion totrade. It also allows some flexibility in the waycommitments are implemented. Developing coun-tries do not have to cut their subsidies or lowertheir tariffs as much as developed countries, andthey are given extra time to complete their oblig-ations. Special provisions deal with the interestsof countries that rely on imports for their foodsupplies, and the least developed economies.

A tariff-quotaThis is what a tariff-quota might look like

Tariff rate Quota limit

Out-of-quota80%

Import quantity1,000tons

10%Charged 10%

Charged 80%

Imports entering under the tariff-quota (up to 1,000 tons) are generally charged10%. Imports entering outside the tariff-quota are charged 80%. Under the UruguayRound agreement, the 1,000 tons would be based on actual imports in the base peri-od or an agreed “minimum access” formula.

Tariff quotas are also called “tariff-rate quotas”.

In-quota

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What is ’distortion’?

The concept of “distortion” is used a lotwhen agricultural trade is discussed.Essentially, trade is distorted if prices arehigher or lower than normal, and if quan-tities produced, bought, and sold are alsohigher or lower than normal — i.e. thanthe levels that would usually exist in acompetitive market.

For example, import barriers and domesticsubsidies can raise crop prices on a coun-try’s internal market. The higher pricescan encourage over-production, and if thesurplus is to be sold on world markets,where prices are lower, then export subsi-dies have to be paid. When some coun-tries subsidize and others do not, theresult can be that the subsidizing coun-tries are producing considerably morethan they normally would.

Governments usually give three reasonsfor supporting and protecting their farm-ers, even if this distorts agricultural trade:

• to make sure that enough food is pro-duced to meet the country’s needs

• to shield farmers from the effects of theweather and swings in world prices

• to preserve rural society.

But the policies have often been expen-sive, and they have encouraged glutsleading to export subsidy wars. Countrieswith less money for subsidies have suf-fered. In negotiations, some countrieshave argued that trying to meet any ofthese objectives is counter-productive.Others have attempted to find ways ofmeeting the objectives without distortingtrade too much.

The newly committed tariffs and tariff quo-tas, covering all agricultural products, took effectin 1995. Uruguay Round participants agreed thatdeveloped countries would cut the tariffs (thehigher out-of-quota rates in the case of tariff-quotas) by an average of 36%, in equal stepsover six years. Developing countries would make24% cuts over 10 years. Several developingcountries also used the option of offering ceilingtariff rates in cases where duties were not“bound” (i.e. committed under GATT or WTOregulations) before the Uruguay Round. Leastdeveloped countries do not have to cut their tar-iffs. (These figures do not actually appear in theAgriculture Agreement. Participants used themto prepare their schedules — i.e. lists of commit-ments. It is the commitments listed in the sched-ules that are legally binding.)

For products whose non-tariff restrictionshave been converted to tariffs, governments areallowed to take special emergency actions(“safeguards”) in order to prevent swiftly fallingprices or surges in imports from hurting theirfarmers. But the agreement specifies when andhow those emergency actions can be introduced(for example, they cannot be used on importswithin a tariff-quota). Four countries used “spe-cial treatment” provisions to restrict imports of

particularly sensitive products (mainly rice) dur-ing the implementation period, but subject tostrictly defined conditions, including minimumaccess for overseas suppliers. The four are:Japan, Rep. of Korea, and the Philippines forrice; and Israel for sheepmeat, wholemilk pow-der and certain cheeses.

Domestic support:some you can, some you can’t

The main complaint about policies whichsupport domestic prices, or subsidize productionin some other way, is that they encourage over-production. This squeezes out imports or leads toexport subsidies and low-priced dumping onworld markets. The Agriculture Agreement dis-tinguishes between support programmes thatstimulate production directly, and those that areconsidered to have no direct effect.

Domestic policies that do have a directeffect on production and trade have to be cutback. WTO members have calculated how muchsupport of this kind they were providing (usingcalculations known as “total aggregate mea-surement of support” or “Total AMS”) for theagricultural sector per year in the base years of1986-88. Developed countries have agreed toreduce these figures by 20% over six years start-ing in 1995. Developing countries are making13% cuts over 10 years. Least developed coun-tries do not need to make any cuts.

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A separate agreement on food safety andanimal and plant health standards (sanitary andphytosanitary measures) sets out the basic rules.

It allows countries to set their own stan-dards. But it also says regulations must be basedon science. They should be applied only to theextent necessary to protect human, animal orplant life or health. And they should not arbitrar-ily or unjustifiably discriminate between countrieswhere identical or similar conditions prevail.

Member countries are encouraged to useinternational standards, guidelines and recom-mendations where they exist. However, membersmay use measures which result in higher stan-dards if there is scientific justification. They canalso set higher standards based on appropriateassessment of risks so long as the approach isconsistent, not arbitrary.

The agreement still allows countries to usedifferent standards and different methods ofinspecting products. So how can an exportingcountry be sure the practices it applies to itsproducts are acceptable in an importing country?If an exporting country can demonstrate that themeasures it applies on its exports achieve thesame level of health protection as in the import-ing country, then the importing country isexpected to accept the exporting country’s stan-dards and methods.

The agreement includes provisions on con-trol, inspection and approval procedures.Governments must provide advance notice ofnew or changed sanitary and phytosanitary regu-lations, and establish a national enquiry point toprovide information. The agreement comple-ments that on technical barriers to trade.

The least developed and thosedepending on food imports

Under the Agriculture Agreement, WTOmembers have to reduce their subsidized exports.But some countries have been highly dependenton supplies of cheap, subsidized food importedfrom the major industrialized nations. Theyinclude some of the poorest countries, andalthough their farming sectors might receive aboost from higher prices, they might need tempo-rary assistance to make the necessary adjustmentsto deal with higher priced imports, and eventuallyto export. A special ministerial decision sets outobjectives, and certain measures, for the provisionof food aid and aid for agricultural development.It also refers to the possibility of assistance fromthe International Monetary Fund and the WorldBank to finance commercial food imports.

Measures with minimal impact on trade canbe used freely — they are in a “green box”(“green” as in traffic lights). They include gov-ernment services such as research, disease con-trol, infrastructure and food security. They alsoinclude payments made directly to farmers thatdo not stimulate production, such as certainforms of direct income support, assistance tohelp farmers restructure agriculture, and directpayments under environmental and regionalassistance programmes.

Also permitted, are certain direct paymentsto farmers where the farmers are required to limitproduction (sometimes called “blue box” mea-sures), certain government assistance pro-grammes to encourage agricultural and ruraldevelopment in developing countries, and othersupport on a small scale when compared with thetotal value of the product or products supported(5% or less in the case of developed countriesand 10% or less for developing countries).

Export subsidies:limits on spending and quantities

The Agriculture Agreement prohibits exportsubsidies on agricultural products unless the sub-sidies are specified in a member’s lists of com-mitments. Where they are listed, the agreementrequires WTO members to cut both the amountof money they spend on export subsidies and thequantities of exports that receive subsidies.Taking averages for 1986-90 as the base level,developed countries have agreed to cut the valueof export subsidies by 36% over the six yearsstarting in 1995 (24% over 10 years for develop-ing countries). Developed countries have alsoagreed to reduce the quantities of subsidizedexports by 21% over the six years (14% over 10years for developing countries). Least developedcountries do not need to make any cuts.

During the six-year implementation period,developing countries are allowed under certainconditions to use subsidies to reduce the costs ofmarketing and transporting exports.

Regulations for animal and plantproducts: how safe is safe?

Problem: How do you ensure that yourcountry’s consumers are being supplied withfood that is safe to eat — “safe” by the stan-dards you consider appropriate? And at thesame time, how can you ensure that strict healthand safety regulations are not being used as anexcuse for protecting domestic producers?

Whose international standards?

An annex to the Sanitary andPhytosanitary Measures Agreementnames:

• the FAO/WHO Codex AlimentariusCommission: for food

• the International Office of Epizootics:for animal health

• the FAO’s Secretariat of theInternational Plant ProtectionConvention: for plant health.

Governments can add any other interna-tional organizations or agreements whosemembership is open to all WTO members.

Four steps over 10 years

The schedule for freeing textiles and garments products from import quotas (and returning them to GATT rules),and how fast remaining quotas should expand.

The example is based on the commonly-used 6% annual expansion rate of the old Multifibre Arrangement. Inpractice, the rates used under the MFA varied from product to product.

Step Percentage of products to be brought How fast remaining quotasunder GATT should open up,

(including removal of any quotas) if 1994 rate was 6%

Step 1: 1 Jan 1995 16% 6.96%(to 31 Dec 1997) (minimum, taking 1990 imports as base) per year

Step 2: 1 Jan 1998 17% 8.7%(to 31 Dec 2001) per year

Step 3: 1 Jan 2002 18% 11.05%(to 31 Dec 2004) per year

Step 4: 1 Jan 2005 49% No quotas leftFull integration into GATT (maximum)(and final elimination of quotas).Agreement on Textilesand Clothing terminates.

The actual formula for import growth under quotas is: by 0.1 u pre-1995 growth rate in the first step; 0.25 uStep 1 growth rate in the second step; and 0.27 u Step 2 growth rate in the third step.

following consultations, or unilaterally. It is sub-ject to review by the Textiles Monitoring Body.

In any system where quotas are set for indi-vidual exporting countries, exporters might try toget around the quotas by shipping productsthrough third countries or making false declara-tions about the products’ country of origin.The agreement includes provisions to cope withthese cases.

The agreement envisages special treatmentfor certain categories of countries — for exam-ple, new market entrants, small suppliers, andleast-developed countries.

A Textiles Monitoring Body (TMB)supervises the agreement’s implementation. Itconsists of a chairman and 10 members acting intheir personal capacity. It monitors actions takenunder the agreement to ensure that they areconsistent, and it reports to the Council on Tradein Goods which reviews the operation of theagreement before each new step of the integra-tion process. The Textiles Monitoring Body alsodeals with disputes under the Agreement onTextiles and Clothing. If they remain unresolved,the disputes can be brought to the WTO’s regu-lar Dispute Settlement Body. Two dispute caseswhere the core arguments were based on theTextiles and Clothing Agreement have beentaken to the Dispute Settlement Body for exami-nation by a panel. They have subsequently beenappealed.

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4. Textiles:back in the mainstream

Textiles, like agriculture, is one of thehardest-fought issues in the WTO, as it was inthe former GATT system. It is now going throughfundamental change under a 10-year scheduleagreed in the Uruguay Round. The system ofimport quotas that has dominated the tradesince the early 1960s is being phased out.

From 1974 until the end of the UruguayRound, the trade was governed by the MultifibreArrangement (MFA) a framework for bilateralagreements or unilateral actions that establishedquotas limiting imports into countries whosedomestic industries were facing serious damagefrom rapidly increasing imports.

The quotas were the most visible feature.They conflicted with GATT’s general preferencefor customs tariffs instead of measures thatrestrict quantities. They were also exceptions tothe GATT principle of treating all trading partnersequally because they specified how much theimporting country was going to accept from indi-vidual exporting countries.

Since 1995, the WTO’s Agreement onTextiles and Clothing (ATC) has taken over fromthe Mulltifibre Arrangement. By 2005, the sectoris to be fully integrated into normal GATT rules.In particular, the quotas will come to an end,and importing countries will no longer be able todiscriminate between exporters. The Agreementon Textiles and Clothing will itself no longerexist: it is the only WTO agreement that has self-destruction built in.

Integration: returningproducts gradually to GATT rules

Textiles and clothing products are beingreturned to GATT rules over the 10-year period.This is happening gradually, in four steps, toallow time for both importers and exporters toadjust to the new situation. Some of these prod-ucts were previously under quotas. Any quotasthat were in place on 31 December 1994 werecarried over into the new agreement. For prod-ucts which had quotas, the result of integrationinto GATT will be the removal of these quotas.

The agreement states the percentage ofproducts that have to be brought under GATTrules at each step. If any of these products cameunder quotas, then the quotas must be removedat the same time. The percentages are applied to

the importing country’s textiles and clothingtrade levels in 1990. The agreement also says thequantities of imports permitted under the quotasshould grow annually, and that the rate ofexpansion should increase at each stage. Howfast that expansion should be is set out in a for-mula based on the growth rate that existed underthe old Multifibre Arrangement (see table).

Products brought under GATT rules at eachof the first three stages must cover the four maintypes of textiles and clothing: tops and yarns;fabrics; made-up textile products; and clothing.Any other restrictions that did not come underthe Multifibre Arrangement and did not conformwith regular WTO agreements by 1996 have tobe made to conform or phased out by 2005.

If further cases of damage to the industryarise during the transition, the agreement allowsadditional restrictions to be imposed temporarilyunder strict conditions. These “transitional safe-guards” are not the same as the safeguard mea-sures normally allowed under GATT because theycan be applied on imports from specific export-ing countries. But the importing country has toshow that its domestic industry is suffering seri-ous damage or is threatened with serious dam-age. And it has to show that the damage is theresult of two things: increased imports of theproduct in question from all sources, and a sharpand substantial increase from the specific export-ing country. The safeguard restriction can beimplemented either by mutual agreement

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5. Services: rules for growthand investment

The General Agreement on Trade in Services(GATS) is the first ever set of multilateral, legally-enforceable rules covering international trade inservices. It was negotiated in the UruguayRound. Like the agreements on goods, GATSoperates on three levels: the main text contain-ing general principles and obligations; annexesdealing with rules for specific sectors; and indi-vidual countries’ specific commitments to provideaccess to their markets. Unlike in goods, GATShas a fourth special element: lists showing wherecountries are temporarily not applying the“most-favoured-nation” principle of non-discrim-ination. These commitments — like tariffschedules under GATT — are an integral partof the agreement. So are the temporary with-drawals of most-favoured-nation treatment.

A WTO Council for Trade in Services over-sees the operation of the agreement.Negotiations on commitments in four topics havetaken place after the Uruguay Round. A full newservices round will start no later than 2000.

The framework: the GATS articles

GATS’s 29 articles cover all services sectors.They contain the general obligations that allmembers have to apply (see also Principles of thetrading system):

Total coverage

The agreement covers all internationally-traded services. This includes all the differentways of providing an international service —GATS defines four:

Basic principles

• All services are covered by GATS

• Most-favoured-nation treatment applies to allservices, except the one-off temporary exemp-tions

• National treatment applies in the areas wherecommitments are made

• Transparency in regulations, inquiry points

• Regulations have to be objective and reasonable

• International payments: normally unrestricted

• Individual countries’ commitments: negotiatedand bound

• Progressive liberalization: through further negoti-ations

• services supplied from one country to another(e.g. international telephone calls), officiallyknown as “cross-border supply”

• consumers or firms making use of a service inanother country (e.g. tourism), officiallyknown as “consumption abroad”

• a foreign company setting up subsidiaries orbranches to provide services in another coun-try (e.g. foreign banks setting up operations ina country), officially “commercial presence”

• individuals travelling from their own countryto supply services in another (e.g. fashionmodels or consultants), officially “presence ofnatural persons”.

Most-favoured-nation (MFN) treatment

Favour one, favour all. MFN means treatingone’s trading partners equally. Under GATS, if acountry allows foreign competition in a sector,equal opportunities in that sector should be giv-en to service providers from all other WTO mem-bers. (This applies even if the country has madeno specific commitment to provide foreign com-panies access to its markets under the WTO.)

MFN applies to all services, but some spe-cial temporary exemptions have been allowed(see below).

What about national treatment?

National treatment — equal treatment forforeigners and one’s own nationals — is treateddifferently for services. For goods (GATT) andintellectual property (TRIPS) it is a general princi-ple. In GATS it only applies where a country hasmade a specific commitment, and exemptionsare allowed (see below).

Transparency

GATS says governments must publish all rel-evant laws and regulations. Within two years (bythe end of 1997) they have to set up inquirypoints within their bureaucracies. Foreign com-panies and governments can then use theseinquiry points to obtain information about regu-lations in any service sector. And they have tonotify the WTO of any changes in regulationsthat apply to the services that come underspecific commitments.

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International payments and transfers

Once a government has made a commit-ment to open a service sector to foreign competi-tion, it must not normally restrict money beingtransferred out of the country as payment forservices supplied (“current transactions”) in thatsector. The only exception is when there are bal-ance-of-payments difficulties, and even then therestrictions must be temporary and subject toother limits and conditions.

Specific commitments

Individual countries’ commitments to openmarkets in specific sectors — and how openthose markets will be — are the outcome ofnegotiations. The commitments appear in“schedules” that list the sectors being opened,the extent of market access being given in thosesectors (e.g. whether there are any restrictionson foreign ownership), and any limitations onnational treatment (whether some rights grantedto local companies will not be granted to foreigncompanies).

These commitments are “bound”: likebound tariffs, they can only be modified or with-drawn after negotiations with affected countries— which would probably lead to compensation.Because “unbinding” is difficult, the commit-ments are virtually guaranteed conditions for for-eign exporters and importers of services andinvestors in the sector to do business.

Progressive liberalization

The Uruguay Round was only the begin-ning. GATS requires more negotiations, the firstto begin within five years. The goal is to take theliberalization process further by increasing thelevel of commitments in schedules.

The annexes:services are not all the same

International trade in goods is a relativelysimple idea to grasp: a product is transportedfrom one country to another. Trade in services ismuch more diverse. Telephone companies,banks, airlines and accountancy firms providetheir services in quite different ways. The GATSannexes reflect some of the diversity.

Movement of natural persons

This annex deals with negotiations on indi-viduals’ rights to stay temporarily in a country forthe purpose of providing a service. It specifiesthat the agreement does not apply to peopleseeking permanent employment or to conditionsfor obtaining citizenship, permanent residence orpermanent employment.

Regulations: objective and reasonable

Since domestic regulations are the most sig-nificant means of exercising influence or controlover services trade, the agreement says govern-ments should regulate services reasonably,objectively and impartially. When a governmentmakes an administrative decision that affects aservice, it should also provide an impartial meansfor reviewing the decision (for example a tri-bunal).

Recognition

When two (or more) governments haveagreements recognizing each other’s qualifica-tions (for example, the licensing or certificationof service suppliers), GATS says other membersmust also be given a chance to negotiate compa-rable pacts. The recognition of other countries’qualifications must not be discriminatory, and itmust not amount to protectionism in disguise.These recognition agreements have to be noti-fied to the WTO.

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Financial services

Instability in the banking system affects thewhole economy. The financial services annexsays governments have the right to take pruden-tial measures, such as those for the protection ofinvestors, depositors and insurance policy hold-ers, and to ensure the integrity and stability ofthe financial system. It also excludes from theagreement services provided when a governmentexercising its authority over the financial system,for example central banks’ services. Negotiationson specific commitments in financial servicescontinued after the end of the Uruguay Round.They ended in late 1997.

Telecommunications

The telecommunications sector has a dualrole: it is a distinct sector of economic activity;and it is an underlying means of supplying othereconomic activities (for example electronic mon-ey transfers). The annex says governments mustensure that foreign service suppliers are givenaccess to the public telecommunications net-works without discrimination. Negotiations onspecific commitments in telecommunicationsresumed after the end of the Uruguay Round.This led to a new liberalization package agreedin February 1997.

Air transport services

Under this annex, traffic rights and directlyrelated activities are excluded from GATS’s cov-erage. They are handled by other bilateral agree-ments. However, the annex establishes that theGATS will apply to aircraft repair and mainte-nance services, marketing of air transport ser-vices and computer-reservation services.

Countries’ commitments:on market-opening

Each country lists specific commitments onservice sectors and on activities within those sec-tors. The commitments guarantee access to thecountry’s market in the listed sectors, and theyspell out any limitations on market access andnational treatment.

As an example; if a government commitsitself to allow foreign banks to operate in itsdomestic market, that is a market access com-mitment. And if the government limits the num-ber of licences it will issue, then that is a marketaccess limitation. If it also says foreign banks areonly allowed one branch while domestic banksare allowed numerous branches, that is anexception to the national treatment principle.

Market access

The lists of market access commitments(along with any limitations and exemptions fromnational treatment) are negotiated as multilater-al packages, although bilateral bargaining ses-sions are needed to develop the packages. Thecommitments therefore contain the negotiatedand guaranteed conditions for conducting inter-national trade in services. If a recorded conditionis to be changed for the worse, then the govern-ment has to give at least three months’ noticeand it has to negotiate compensation withaffected countries. But the commitments can beimproved at any time. They will be subject to fur-ther liberalization through the future negotia-tions already committed under GATS. The firstbe-gan in 2000 are are still continuing.

National treatment

National treatment means treating one’sown nationals and foreigners equally. In services,it means that once a foreign company has beenallowed to supply a service in one’s country thereshould be no discrimination between the foreignand local companies.

Under GATS, a country only has to applythis principle when it has made a specific com-mitment to provide foreigners access to its ser-vices market. It does not have to apply nationaltreatment in sectors where it has made no com-mitment. Even in the commitments, GATS doesallow some limits on national treatment.

This contrasts with the way the nationaltreatment principle is applied for goods — inthat case, once a product has crossed a borderand been cleared by customs it has to be givennational treatment even if the importing countryhas not made any commitment under the WTOto bind the tariff rate.

After the Uruguay RoundGATS talks that resumed after the round

A full new services round will start in2000 at the latest.

Basic telecommunications completedFebruary 1997

Financial services completed late 1997

Maritime transport suspended

Movement of natural persons completedJuly 1995

Other issues for future negotiation: subsi-dies, government procurement, safe-guards, qualifications, technical stan-dards, licensing.

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MFN exemptions:temporary and one-off

WTO members have also made separatelists of exceptions to the MFN principle of non-discrimination. When GATS came into force, anumber of countries already had preferentialagreements in services that they had signed withtrading partners, either bilaterally or in smallgroups. WTO members felt it was necessary tomaintain these preferences temporarily. Theygave themselves the right to continue givingmore favourable treatment to particular coun-tries in particular service activities by listing“MFN exemptions” alongside their first sets ofcommitments. In order to protect the generalMFN principle, the exemptions could only bemade once; nothing can be added to the lists.They will be reviewed after five years (in 2000),and will normally last no more than 10 years.The exemption lists are also part of the GATSagreement.

On-going work:even before the next round

At the end of the Uruguay Round govern-ments agreed to continue negotiations in fourareas: basic telecommunications, maritime trans-port, movement of natural persons, and financialservices. Some commitments in some of thesesectors had been made in the Uruguay Roundagreements. The objective of continuing with thenegotiations was to improve the package.

Basic telecommunications

This was an area where governments didnot offer commitments during the UruguayRound — essentially because the privatization ofgovernment monopolies was a complex issues inmany countries. Sophisticated value-addedtelecommunications services, which are morecommonly provided on a private basis, were,however, included in many of the original GATSschedules. The negotiations on basic telecommu-nications ended in February 1997 with newnational commitments taking effect fromFebruary 1998.

Maritime transport

Maritime transport negotiations were origi-nally scheduled to end in June 1996, but partici-pants failed to agree on a package of commit-ments. Talks on maritime transport re due toresume in the current round of srevices negotia-tions which started in 2000. Some commitmentsare already included in some countries’ sched-ules covering the three main areas in this sector:access to and use of port facilities; auxiliary ser-vices; and ocean transport.

Movement of natural persons

“Movement of natural persons” refers tothe entry and temporary stay of persons for thepurpose of providing a service. It does not relateto persons seeking permanent employment orpermanent residence in a country. Some commit-ments are already included in the schedules butit was agreed that negotiations to improve com-mitments would take place in the six monthsafter the WTO came into force. These onlyachieved modest results.

Financial services

Financial services is another area where fur-ther negotiations were scheduled to improve onthe commitments included in the initial UruguayRound schedules. Officially the talks ended inJuly 1995, but the governments decided thatmore could be achieved if further talks could beheld. They ended in December 1997.

Other issues

GATS identifies several more issues forfuture negotiation. One set of negotiationswould create rules that are not yet included inGATS: rules dealing with subsidies, govern-ment procurement and safeguard mea-sures.

Another set of negotiations would seekrules on the requirements foreign serviceproviders have to meet in order to operate in amarket. The objective is to prevent these require-ments being used as unnecessary barriers totrade. The focus is on: qualification require-ments and procedures, technical stan-dards and licensing requirements.

As part of this task, a working party on pro-fessional services has been set up. It is tacklingthe accountancy sector first, a priority set byministers, but eventually all professional servicesshould be covered. The first result of these dis-cussions emerged in May 1997 when theServices Council adopted new guidelines forcountries to use when negotiating agreements torecognize each others’ professional qualificationsin accountancy. The guidelines are not binding.

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6. Intellectual property:protectionand enforcement

Ideas and knowledge are an increasinglyimportant part of trade. Most of the value ofnew medicines and other high technology prod-ucts lies in the amount of invention, innovation,research, design and testing involved. Films,music recordings, books, computer software andon-line services are bought and sold because ofthe information and creativity they contain, notusually because of the plastic, metal or paperused to make them. Many products that used tobe traded as low-technology goods or commodi-ties now contain a higher proportion of inventionand design in their value — for example brand-named clothing or new varieties of plants.

Creators can be given the right to preventothers from using their inventions, designs orother creations. These rights are known as“intellectual property rights”. They take a num-ber of forms. For example books, paintings andfilms come under copyright; inventions can bepatented; brandnames and product logos can beregistered as trademarks; and so on.

Types of intellectual propertyThe areas covered by the TRIPS agreement

Copyright and related rightsTrademarks, including service marksGeographical indicationsIndustrial designsPatentsLayout-designs (topographies) of integrated circuitsUndisclosed information, including trade secrets

Origins:into the rule-based trade system

The extent of protection and enforcement ofthese rights varied widely around the world; andas intellectual property became more importantin trade, these differences became a source oftension in international economic relations. Newinternationally-agreed trade rules for intellectualproperty rights were seen as a way to introducemore order and predictability, and for disputes tobe settled more systematically.

The 1986-94 Uruguay Round achieved that.The WTO’s Agreement on Trade-Related Aspectsof Intellectual Property Rights (TRIPS) is anattempt to narrow the gaps in the way theserights are protected around the world, and tobring them under common international rules.When there are trade disputes over intellectualproperty rights, the WTO’s dispute settlementsystem is now available.

The agreement covers five broad issues:• how basic principles of the trading system

and other international intellectual propertyagreements should be applied

• how to give adequate protection to intellec-tual property rights

• how countries should enforce those rightsadequately in their own territories

• how to settle disputes on intellectual prop-erty between members of the WTO

• special transitional arrangements duringthe period when the new system is beingintroduced.

How to protect intellectual property:common ground-rules

The second part of the TRIPS agreementlooks at different kinds of intellectual propertyrights and how to protect them. The purpose isto ensure that adequate standards of protectionexist in all member countries. Here the startingpoint is the obligations of the main internationalagreements of the World Intellectual PropertyOrganization (WIPO) that already existed beforethe WTO was created:

• the Paris Convention for the Protection ofIndustrial Property (patents, industrial designs,etc)

• the Berne Convention for the Protection ofLiterary and Artistic Works (copyright).

Some areas are not covered by these con-ventions. In some cases, the standards of protec-tion prescribed were thought inadequate. So theTRIPS agreement adds a significant number ofnew or higher standards.

Copyright

The TRIPS agreement ensures that computerprogrammes will be protected as literary worksunder the Berne Convention and outlines howdatabases should be protected.

It also expands international copyright rulesto cover rental rights. Authors of computer pro-grammes and producers of sound recordingsmust have the right to prohibit the commercialrental of their works to the public. A similarexclusive right applies to films where commercialrental has led to widespread copying, affectingcopyright-owners’ potential earnings from theirfilms.

The agreement says performers must alsohave the right to prevent unauthorized record-ing, reproduction and broadcast of live perfor-mances (bootlegging) for no less than 50 years.Producers of sound recordings must have theright to prevent the unauthorized reproduction ofrecordings for a period of 50 years.

Trademarks

The agreement defines what types of signsmust be eligible for protection as trademarks,and what the minimum rights conferred on theirowners must be. It says that service marks mustbe protected in the same way as trademarksused for goods. Marks that have become well-known in a particular country enjoy additionalprotection.

Geographical indications

Place names are sometimes used to identifya product. Well-known examples include“Champagne”, “Scotch”, “Tequila”, and“Roquefort” cheese. Wine and spirits makers areparticularly concerned about the use of place-names to identify products, and the TRIPS agree-ment contains special provisions for these prod-ucts. But the issue is also important for othertypes of goods.

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Basic principles: national treatment,MFN, and technology transfer

As in GATT and GATS, the starting point ofthe intellectual property agreement is basic prin-ciples. And as in the two other agreements, non-discrimination features prominently: nationaltreatment (treating one’s own nationals and for-eigners equally), and most-favoured-nation treat-ment (equal treatment for nationals of all tradingpartners in the WTO). National treatment is alsoa key principle in other intellectual propertyagreements outside the WTO.

When an inventor or creator is grantedpatent or copyright protection, he obtains theright to stop other people making unauthorizedcopies. Society at large sees this temporary intel-lectual property protection as an incentive toencourage the development of new technologyand creations which will eventually be availableto all. The TRIPS Agreement recognizes the needto strike a balance. It says intellectual propertyprotection should contribute to technical innova-tion and the transfer of technology. Both produc-ers and users should benefit, and economic andsocial welfare should be enhanced, the agree-ment says.

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The use of a place name to describe a prod-uct in this way — a “geographical indication”— usually identifies both its geographical originand its characteristics. Therefore, using the placename when the product was made elsewhere orwhen it does not have the usual characteristicscan mislead consumers, and it can lead to unfaircompetition. The TRIPS agreement says countrieshave to prevent the misuse of place names.

For wines and spirits, the agreement pro-vides higher levels of protection, i.e. even wherethere is no danger of the public being misled.

Some exceptions are allowed, for example ifthe name is already protected as a trademark orif it has become a generic term. For example,“cheddar” now refers to a particular type ofcheese not necessarily made in Cheddar. But anycountry wanting to make an exception for thesereasons must be willing to negotiate with thecountry which wants to protect the geographicalindication in question. The agreement providesfor further negotiations in the WTO to establish amultilateral system of notification and registra-tion of geographical indications for wines.

Industrial designs

Under the TRIPS agreement, industrialdesigns must be protected for at least 10 years.Owners of protected designs must be able toprevent the manufacture, sale or importation ofarticles bearing or embodying a design which isa copy of the protected design.

Patents

The agreement says patent protection mustbe available for inventions for at least 20 years.Patent protection must be available for bothproducts and processes, in almost all fields oftechnology. Governments can refuse to issue apatent for an invention if its commercial exploita-tion is prohibited for reasons of public order ormorality. They can also exclude diagnostic, thera-peutic and surgical methods, plants and animals(other than microorganisms), and biologicalprocesses for the production of plants or animals(other than microbiological processes).

Plant varieties, however, must be pro-tectable by patents or by a special system (suchas the breeder’s rights provided in the conven-tions of UPOV — the International Union for theProtection of New Varieties of Plants).

The agreement describes the minimumrights that a patent owner must enjoy. But it alsoallows certain exceptions. A patent-owner couldabuse his rights, for example by failing to supplythe product on the market. To deal with thatpossibility, the agreement says governments canissue “compulsory licences”, allowing a competi-tor to produce the product or use the processunder licence. But this can only be done undercertain conditions aimed at safeguarding thelegitimate interests of the patent-holder.

If a patent is issued for a productionprocess, then the rights must extend to the prod-uct directly obtained from the process. Undercertain conditions alleged infringers may beordered by a court to prove that they have notused the patented process.

What’s the difference?

Obviously, copyrights, patents, trademarks, etcapply to different types of creations or inventions.They are also treated differently.

Patents, industrial designs, integrated circuitdesigns, geographical indications and trademarkshave to be registered in order to receive protection.The registration includes a description of what isbeing protected — the invention, design, brand-name, logo, etc — and this description is publicinformation.

Copyright and trade secrets are protected automati-cally according to specified conditions. They do nothave to be registered, and therefore there is noneed to disclose, for example, how copyrightedcomputer software is constructed.

Other conditions may also differ, for example thelength of time that each type of protection remainsin force.

Integrated circuits layout designs

The basis for protecting integrated circuitdesigns (“topographies”) in the TRIPS agree-ment is the Washington Treaty on IntellectualProperty in Respect of Integrated Circuits, whichcomes under the World Intellectual PropertyOrganization. This was adopted in 1989 but hasnot yet entered into force. The TRIPS agreementadds a number of provisions: for example, pro-tection must be available for at least 10 years.

Undisclosed information and trade secrets

Trade secrets and other types of “undis-closed information” which have commercial val-ue must be protected against breach of confi-dence and other acts contrary to honestcommercial practices. But reasonable steps musthave been taken to keep the information secret.Test data submitted to governments in order toobtain marketing approval for new pharmaceuti-cal or agricultural chemicals must also be pro-tected against unfair commercial use.

Curbing anti-competitive licensing contracts

The owner of a copyright, patent or otherform of intellectual property right can issue alicence for someone else to produce or copy theprotected trademark, work, invention, design,etc. The agreement recognizes that the terms ofa licensing contract could restrict competition orimpede technology transfer. It says that undercertain conditions, governments have the right totake action to prevent anti-competitive licensingthat abuses intellectual property rights. It alsosays governments must be prepared to consulteach other on controlling anti-competitivelicensing.

Enforcement: tough but fair

Having intellectual property laws is notenough. They have to be enforced. This is cov-ered in Part 3 of TRIPS. The agreement says gov-ernments have to ensure that intellectual proper-ty rights can be enforced under their laws, andthat the penalties for infringement are toughenough to deter further violations. The proce-dures must be fair and equitable, and not unnec-essarily complicated or costly. They should notentail unreasonable time-limits or unwarranteddelays. People involved should be able to ask acourt to review an administrative decision or toappeal a lower court’s ruling.

The agreement describes in some detailhow enforcement should be handled, includingrules for obtaining evidence, provisional mea-sures, injunctions, damages and other penalties.It says courts should have the right, under cer-tain conditions, to order the disposal or destruc-tion of pirated or counterfeit goods. Wilful trade-mark counterfeiting or copyright piracy on acommercial scale should be criminal offences.Governments should make sure that intellectualproperty rights owners can receive the assistanceof customs authorities to prevent imports ofcounterfeit and pirated goods.

Transition arrangements:1, 5 or 11 years to fall into line

When the WTO agreements took effect on 1January 1995, developed countries were givenone year to ensure that their laws and practicesconform with the TRIPS agreement. Developingcountries and (under certain conditions) transi-tion economies are given five years. Least devel-oped countries have 11 years.

If a developing country did not provideproduct patent protection in a particular area oftechnology when the TRIPS Agreement cameinto force (1 January 1995), it has up to 10 yearsto introduce the protection. But for pharmaceuti-cal and agricultural chemical products, the coun-try must accept the filing of patent applications

from the beginning of the transitional period,though the patent need not be granted until theend of this period. If the government allows therelevant pharmaceutical or agricultural chemicalto be marketed during the transition period, itmust — subject to certain conditions — providean exclusive marketing right for the product forfive years, or until a product patent is granted,whichever is shorter.

Subject to certain exceptions, the generalrule is that obligations in the agreement apply tointellectual property rights that existed at theend of a country’s transition period as well as tonew ones.

A Council for Trade-Related Aspects ofIntellectual Property Rights monitors the workingof the agreement and governments’ compliancewith it.

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7. Anti-dumping, subsidies,safeguards:contingencies, etc

Binding tariffs, and applying them equallyto all trading partners (MFN) are key to thesmooth flow of trade in goods. The WTO agree-ments uphold the principles, but they also allowexceptions — in some circumstances. Threeissues are important:• actions taken against dumping (selling at an

unfairly low price)• subsidies and special “countervailing” duties

to offset the subsidies• emergency measures to limit imports tem-

porarily, designed to “safeguard” domesticindustries.

What is this agreement called? Agreement on theimplementation of Article VI of the General Agreementon Tariffs and Trade 1994

GATT (Article 6) allows countries to takeaction against dumping. The Anti-DumpingAgreement clarifies and expands Article 6, andthe two operate together. They allow countriesto act in a way that would normally break theGATT principles of binding a tariff and not dis-criminating between trading partners — typicallyanti-dumping action means charging extraimport duty on the particular product from theparticular exporting country in order to bring itsprice closer to the “normal value” or to removethe injury to domestic industry in the importingcountry.

There are many different ways of calculatingwhether a particular product is being dumpedheavily or only lightly. The agreement narrowsdown the range of possible options. It providesthree methods to calculate a product’s “normalvalue”. The main one is based on the price in theexporter’s domestic market. When this cannot beused, two alternatives are available — the pricecharged by the exporter in another country, or acalculation based on the combination of theexporter’s production costs, other expenses andnormal profit margins. And the agreement alsospecifies how a fair comparison can be madebetween the export price and what would be anormal price.

Calculating the extent of dumping on aproduct is not enough. Anti-dumping measurescan only be applied if the dumping is hurting theindustry in the importing country. Therefore, adetailed investigation has to be conductedaccording to specified rules first. The investiga-tion must evaluate all relevant economic factorsthat have a bearing on the state of the industryin question. If the investigation shows dumpingis taking place and domestic industry is beinghurt, the exporting company can undertake toraise its price to an agreed level in order to avoidanti-dumping import duty.

Anti-dumping actions

If a company exports a product at a pricelower than the price it normally charges on itsown home market, it is said to be “dumping”the product. Is this unfair competition? Opinionsdiffer, but many governments take action againstdumping in order to defend their domestic indus-tries. The WTO agreement does not pass judge-ment. Its focus is on how governments can orcannot react to dumping — it disciplines anti-dumping actions, and it is often called the “Anti-Dumping Agreement”. (This focus only on thereaction to dumping contrasts with the approachof the Subsidies and Countervailing MeasuresAgreement.)

The legal definitions are more precise, butbroadly speaking the WTO agreement allowsgovernments to act against dumping wherethere is genuine (“material”) injury to the com-peting domestic industry. In order to do that thegovernment has to be able to show that dump-ing is taking place, calculate the extent of dump-ing (how much lower the export price is com-pared to the exporter’s home market price), andshow that the dumping is causing injury.

’AD-CVD’?

Yes, but there are fundamental differences

Dumping and subsidies — together with anti-dumping (AD) measures and countervailing duties (CVD) — areoften linked. Experts speak of “AD-CVD” in one breath. Many countries handle the two issues under a single law,apply similar process to deal with them and give a single authority responsibility for investigations. Occasionally,the two WTO committees responsible for these issues meet jointly.

There are a number of similarities. The reaction to dumping and subsidies is often a special offsetting import tax(countervailing duty in the case of a subsidy). Like anti-dumping duty, countervailing duty is charged on productsfrom specific countries and therefore it breaks the GATT principles of binding a tariff and treating trading partnersequally (MFN). The agreements provide an escape clause, but they both also say that before imposing a duty, theimporting country must conduct a detailed investigation that shows properly that domestic industry is hurt.

But there are also fundamental differences, and these are reflected in the agreements.

Dumping is an action by a company. With subsidies, it is the government or a government agency that acts, eitherby paying out subsidies directly or by requiring companies to subsidize certain customers.

But the WTO is an organization of countries and their governments. The WTO does not deal with companies andcannot regulate companies’ actions such as dumping. Therefore the Anti-Dumping Agreement only concerns theactions governments may take against dumping. With subsidies, governments act on both sides: they subsidizeand they act against each others’ subsidies. Therefore the subsidies agreement disciplines both the subsidies andthe reactions.

The present rules revise the Tokyo Round(1973-79) code on anti-dumping measures andare a result of the Uruguay Round (1986-94)negotiations. The Tokyo Round code was notsigned by all GATT members; the Uruguay Roundversion is part of the WTO agreement andapplies to all members.

The WTO Anti-Dumping Agreement intro-duced these modifications:• more detailed rules for calculating the amount

of dumping,• more detailed procedures for initiating and

conducting anti-dumping investigations,• rules on the implementation and duration

(normally five years) of anti-dumping mea-sures,

• particular standards for dispute settlementpanels to apply in anti-dumping disputes.

The agreement says member countries mustinform the Committee on Anti-DumpingPractices about all preliminary and final anti-dumping actions, promptly and in detail. Theymust also report on all investigations twice ayear. When differences arise, members areencouraged to consult each other. They can alsouse the WTO’s dispute settlement procedure.

Subsidiesand countervailing measures

This agreement does two things: it disci-plines the use of subsidies, and it regulates theactions countries can take to counter the effectsof subsidies. It says a country can use the WTO’sdispute settlement procedure to seek the with-drawal of the subsidy or the removal of itsadverse effects. Or the country can launch itsown investigation and ultimately charge extraduty (known as “countervailing duty”) on subsi-dized imports that are found to be hurtingdomestic producers.

The agreement builds on the Tokyo RoundSubsidy Code. Unlike its predecessor, the presentagreement contains a definition of subsidy. Italso introduces the concept of a “specific” sub-sidy — i.e. a subsidy available only to an enter-prise, industry, group of enterprises, or group ofindustries in the country (or state, etc) that givesthe subsidy. The disciplines set out in the agree-ment only apply to specific subsidies. They canbe domestic or export subsidies.

As with anti-dumping, the subsidy agree-ment is part of the package of WTO agreementsthat is signed by all members — the TokyoRound “code” was only signed by some GATTmembers.

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What is this agreement called? Agreement onSubsidies and Countervailing Measures

Detailed procedures are set out on how anti-dumping cases are to be initiated, how the inves-tigations are to be conducted, and the conditionsfor ensuring that all interested parties are givenan opportunity to present evidence. Anti-dumpingmeasures must expire five years after the date ofimposition, unless an investigation shows thatending the measure would lead to injury.

Anti-dumping investigations are to endimmediately in cases where the authorities deter-mine that the margin of dumping is insignificant-ly small (defined as less than 2% of the exportprice of the product). Other conditions are alsoset. For example, the investigations also have toend if the volume of dumped imports is negligi-ble (i.e. if the volume from one country is lessthan 3% of total imports of that product— although investigations can proceed if severalcountries, each supplying less than 3% of theimports, together account for 7% or more oftotal imports).

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The agreement defines three categories ofsubsidies: prohibited, actionable and non-action-able. It applies to agricultural goods as well asindustrial products, except when the subsidiesconform with the Agriculture Agreement.• Prohibited subsidies: subsidies that requirerecipients to meet certain export targets, or touse domestic goods instead of imported goods.They are prohibited because they are specificallydesigned to distort international trade, and aretherefore likely to hurt other countries’ trade.They can be challenged in the WTO dispute set-tlement procedure where they are handled underan accelerated timetable. If the dispute settle-ment procedure confirms that the subsidy is pro-hibited, it must be withdrawn immediately.Otherwise, the complaining country can takecounter measures. If domestic producers are hurtby imports of subsidized products, countervailingduty can be imposed.• Actionable subsidies: in this category thecomplaining country has to show that the sub-sidy has an adverse effect on its interests.Otherwise the subsidy is permitted. The agree-ment defines three types of damage they cancause. One country’s subsidies can hurt a domes-tic industry in an importing country. They canhurt rival exporters from another country whenthe two compete in third markets. And domesticsubsidies in one country can hurt exporters tryingto compete in the subsidizing country’s domesticmarket. If the Dispute Settlement Body rules thatthe subsidy does have an adverse effect, the sub-sidy must be withdrawn or its adverse effectmust be removed. Again, if domestic producersare hurt by imports of subsidized products, coun-tervailing duty can be imposed.• Non-actionable subsidies: these can eitherbe non-specific subsidies, or specific subsidies forindustrial research and pre-competitive develop-ment activity, assistance to disadvantagedregions, or certain types of assistance for adapt-ing existing facilities to new environmental lawsor regulations. Non-actionable subsidies cannotbe challenged in the WTO’s dispute settlementprocedure, and countervailing duty cannot beused on subsidized imports. But the subsidieshave to meet strict conditions.

Some of the disciplines are similar to thoseof the Anti-Dumping Agreement. Countervailingduty (the parallel of anti-dumping duty) can onlybe charged after the importing country has con-ducted a detailed investigation similar to thatrequired for anti-dumping action. There aredetailed rules for deciding whether a product isbeing subsidized (not always an easy calcula-tion), criteria for determining whether imports ofsubsidized products are hurting (“causing injuryto”) domestic industry, procedures for initiatingand conducting investigations, and rules on theimplementation and duration (normally fiveyears) of countervailing measures. The subsidizedexporter can also agree to raise its export pricesas an alternative to its exports being chargedcountervailing duty.

Subsidies may play an important role indeveloping countries and in the transformationof centrally-planned economies to marketeconomies. Least-developed countries and devel-oping countries with less than $1,000 per capitaGNP are exempted from disciplines on prohibitedexport subsidies. Other developing countries aregiven until 2003 to get rid of their export subsi-dies. Least-developed countries must eliminateimport-substitution subsidies (i.e. subsidiesdesigned to help domestic production and avoidimporting) by 2003 — for other developingcountries the deadline is 2000. Developing coun-tries also receive preferential treatment if theirexports are subject to countervailing duty investi-gations. For transition economies, prohibitedsubsidies must be phased out by 2002.

What is this agreement called? Agreement onSafeguards

Safeguards: emergency protectionfrom imports

A WTO member may restrict imports of aproduct temporarily (take “safeguard” actions) ifits domestic industry is injured or threatened withinjury caused by a surge in imports. Here, theinjury has to be serious. Safeguard measures werealways available under GATT (Article 19).However, they were infrequently used, some gov-ernments preferring to protect their domesticindustries through “grey area” measures — usingbilateral negotiations outside GATT’s auspicesthey persuaded exporting countries to restrainexports “voluntarily” or to agree to other meansof sharing markets. Agreements of this kind werereached for a wide range of products: automo-biles, steel, and semiconductors, for example.

Industries or companies may request safe-guard action by their government. The WTOagreement sets out requirements for safeguardinvestigations by national authorities. Theemphasis is on transparency and on followingestablished rules and practices — avoiding arbi-trary methods. The authorities conducting inves-tigations have to announce publicly when hear-ings are to take place and provide otherappropriate means for interested parties to pre-sent evidence. The evidence must include argu-ments on whether a measure is in the publicinterest.

The agreement sets out criteria for assess-ing whether “serious injury” is being caused orthreatened, and the factors which must be con-sidered in determining the impact of imports onthe domestic industry. When imposed, a safe-guard measure should be applied only to theextent necessary to prevent or remedy seriousinjury and to help the industry concerned toadjust. Where quantitative restrictions (quotas)are imposed, they normally should not reducethe quantities of imports below the annual aver-age for the last three representative years forwhich statistics are available, unless clear justifi-cation is given that a different level is necessaryto prevent or remedy serious injury.

In principle, safeguard measures cannot betargeted at imports from a particular country.However, the agreement does describe how quo-tas can be allocated among supplying countries,including in the exceptional circumstance where

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The WTO agreement broke new ground. Itprohibits “grey area” measures, and it sets timelimits (a “sunset clause”) on all safeguardactions. The agreement says members must notseek, take or maintain any voluntary exportrestraints, orderly marketing arrangements orany other similar measures on the export or theimport side. The bilateral measures that were notmodified to conform with the agreement werephased out at the end of 1998. Countries wereallowed to keep one of these measures an extrayear (until the end of 1999), but only theEuropean Union-with respect to its restrictionson imports of cars from Japan-availed of thisprovision. Safeguard measures already takenbefore the WTO came into being--under Article19 of GATT 1947-must end eight years after thedate on which they were first applied or by theend of 1999, whichever comes later.

An import “surge” justifying safeguardaction can be a real increase in imports (anabsolute increase); or it can be an increase in theimports’ share of a shrinking market, even if theimport quantity has not increased (relativeincrease).

imports from certain countries have increaseddisproportionately quickly. A safeguard measureshould not last more than four years, althoughthis can be extended up to eight years, subject toa determination by competent national authori-ties that the measure is needed and that there isevidence the industry is adjusting. Measuresimposed for more than a year must be progres-sively liberalized.

When a country restricts imports in order tosafeguard its domestic producers, in principle itmust give something in return. The agreementsays the exporting country (or exporting coun-tries) can seek compensation through consulta-tions. If no agreement is reached the exportingcountry can retaliate by taking equivalent action— for instance, it can raise tariffs on exportsfrom the country that is enforcing the safeguardmeasure. In some circumstances, the exportingcountry has to wait for three years after the safe-guard measure was introduced before it canretaliate in this way — i.e. if the measure con-forms with the provisions of the agreement andif it is taken as a result of an absolute increase inthe quantity of imports from the exporting coun-try.

To some extent developing countries’exports are shielded from safeguard actions. Animporting country can only apply a safeguardmeasure to a product from a developing countryif the developing country is supplying more than3% of the imports of the that product, or ifdeveloping country members with less than 3%import share collectively account for more than9% of total imports of the product concerned.

The WTO’s Safeguards Committee overseesthe operation of the agreement and is responsi-ble for the surveillance of members’ commit-ments. Governments have to report each phaseof a safeguard investigation and related deci-sion-making, and the committee reviews thesereports.

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8. Non-tariff barriers:technicalities,red tape, etc

Finally, a number of agreements deal withvarious technical, bureaucratic or legal issuesthat could involve hindrances to trade.• technical regulations and standards• import licensing• rules for the valuation of goods at customs• preshipment inspection: further checks on

imports• rules of origin: made in ... where?• investment measures

Technical regulations and standards

Technical regulations and industrial stan-dards are important, but they vary from countryto country. Having too many different standardsmakes life difficult for producers and exporters. Ifthe standards are set arbitrarily, they could beused as an excuse for protectionism. Standardscan become obstacles to trade.

The Agreement on Technical Barriers toTrade tries to ensure that regulations, standards,testing and certification procedures do not createunnecessary obstacles. The WTO’s version is amodification of the code negotiated in the 1973-79 Tokyo Round.

The agreement recognizes countries’ rightsto adopt the standards they consider appropriate— for example, for human, animal or plant lifeor health, for the protection of the environmentor to meet other consumer interests. Moreover,members are not prevented from taking mea-sures necessary to ensure their standards aremet. In order to prevent too much diversity, theagreement encourages countries to use interna-tional standards where these are appropriate,but it does not require them to change their lev-els of protection as a result.

What is this agreement called? Agreement onImport Licensing Procedures

The agreement sets out a code of goodpractice for the preparation, adoption and appli-cation of standards by central government bod-ies. It also includes provisions describing howlocal government and non-governmental bodiesshould apply their own regulations — normallythey should use the same principles as apply tocentral governments.

The agreement says the procedures used todecide whether a product conforms with nationalstandards have to be fair and equitable. It dis-courages any methods that would give domes-tically produced goods an unfair advantage. Theagreement also encourages countries to recog-nize each other’s testing procedures. That way, aproduct can be assessed to see if it meets theimporting country’s standards through testing inthe country where it is made.

Manufacturers and exporters need to knowwhat the latest standards are in their prospectivemarkets. To help ensure that this information ismade available conveniently, all WTO membergovernments are required to establish nationalenquiry points.

Import licensing:keeping procedures clear

Although less widely used now than in thepast, import licensing systems are subject to dis-ciplines in the WTO. The Agreement on ImportLicensing Procedures says import licensingshould be simple, transparent and predictable.For example, the agreement requires govern-ments to publish sufficient information fortraders to know how and why the licences aregranted. It also describes how countries should

What is this agreement called? Agreement onTechnical Barriers to Trade

notify the WTO when they introduce new importlicensing procedures or change existing proce-dures. The agreement offers guidance on howgovernments should assess applications forlicences.

Some licences are issued automatically ifcertain conditions are met. The agreement setscriteria for automatic licensing so that the proce-dures used do not restrict trade.

Other licences are not issued automatically.Here, the agreement tries to minimise theimporters’ burden in applying for licences, sothat the administrative work dœs not in itselfrestrict or distort imports. The agreement saysthe agencies handling licensing should not nor-mally take more than 30 days to deal with anapplication — 60 days when all applications areconsidered at the same time.

The present agreement is a modification ofthe “code” (i.e. agreement signed by only someGATT signatories) negotiated in the 1973-79Tokyo Round. It is now part of the WTO packagesigned by all WTO members.

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Rules for the valuation of goodsat customs

For importers, the process of estimating thevalue of a product at customs presents problemsthat can be just as serious as the actual duty ratecharged. The WTO agreement on customs valua-tion aims for a fair, uniform and neutral systemfor the valuation of goods for customs purposes— a system that conforms to commercial reali-ties, and which outlaws the use of arbitrary orfictitious customs values. The agreement pro-vides a set of valuation rules, expanding and giv-ing greater precision to the provisions on cus-toms valuation in the original GATT.

A related Uruguay Round ministerial deci-sion gives customs administrations the right torequest further information in cases where theyhave reason to doubt the accuracy of thedeclared value of imported goods. If the adminis-tration maintains a reasonable doubt, despiteany additional information, it may be deemedthat the customs value of the imported goodscannot be determined on the basis of thedeclared value.

What is this agreement called? Agreement onPreshipment Inspection

Preshipment inspection: a furthercheck on imports

Preshipment inspection is the practice ofemploying specialized private companies (or“independent entities”) to check shipmentdetails — essentially price, quantity and quality— of goods ordered overseas. Used by govern-ments of developing countries, the purpose is tosafeguard national financial interests (preventionof capital flight and commercial fraud as well ascustoms duty evasion, for instance) and to com-pensate for inadequacies in administrative infra-structures.

The agreement recognizes that GATT princi-ples and obligations apply to the activities ofpreshipment inspection agencies mandated bygovernments. The obligations placed on govern-ments which use preshipment inspectionsinclude non-discrimination, transparency, protec-tion of confidential business information, avoid-ance of unreasonable delay, the use of specificguidelines for conducting price verification andthe avoidance of conflicts of interest by theinspection agencies. The obligations of exportingmembers towards countries using preshipment

What is this agreement called? Agreement onImplementation of Article VII of the GeneralAgreement on Tariffs and Trade 1994; and relatedministerial decisions: “Decision Regarding CasesWhere Customs Administrations Have Reasons toDoubt the Truth or Accuracy of the Declared Value”and “Decisions on Texts Relating to Minimum Valuesand Imports by Sole Agents, Sole Distributors and SoleConcessionaires”.

inspection include non-discrimination in theapplication of domestic laws and regulations,prompt publication of those laws and regulationsand the provision of technical assistance whererequested.

The agreement establishes an independentreview procedure. It is administered jointly by anorganization representing inspection agenciesand an organization representing exporters. Itspurpose is to resolve disputes between anexporter and an inspection agency.

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Rules of origin: made in ... where?

“Rules of origin” are the criteria used todefine where a product was made. They are anessential part of trade rules because a number ofpolicies discriminate between exporting coun-tries: quotas, preferential tariffs, anti-dumpingactions, countervailing duty (charged to counterexport subsidies), and more. Rules of origin arealso used to compile trade statistics, and for“made in ...” labels that are attached toproducts.

This first-ever agreement on the subjectrequires WTO members to ensure that their rulesof origin are transparent; that they do not haverestricting, distorting or disruptive effects oninternational trade; that they are administered ina consistent, uniform, impartial and reasonablemanner; and that they are based on a positivestandard (in other words, they should state whatdoes confer origin rather than what does not).

For the longer term, the agreement aims forcommon (“harmonized”) rules of origin amongall WTO members, except in some kinds of pref-erential trade — for example, countries settingup a free trade area are allowed to use differentrules of origin for products traded under theirfree trade agreement. The agreement establishesa harmonization work programme, to be com-pleted by July 1998, based upon a set of princi-ples, including making rules of origin objective,understandable and predictable. The work isbeing conducted by a Committee on Rules ofOrigin in the WTO and a Technical Committee

under the auspices of the World CustomsOrganization in Brussels. The outcome will be asingle set of rules of origin to be applied undernon-preferential trading conditions by all WTOmembers in all circumstances.

An annex to the agreement sets out a“common declaration” dealing with the opera-tion of rules of origin on goods which qualify forpreferential treatment.

Investment measures:reducing trade distortions

The Agreement on Trade-RelatedInvestment Measures (TRIMS) applies only tomeasures that affect trade in goods. It recog-nizes that certain measures can restrict and dis-tort trade, and states that no member shall applyany measure that discriminates against foreign-ers or foreign products (i.e. violates “nationaltreatment” principles in GATT). It also outlawsinvestment measures that lead to restrictions inquantities (violating another principle in GATT).An illustrative list of TRIMS agreed to be incon-sistent with these GATT articles is appended tothe agreement. The list includes measures whichrequire particular levels of local procurement byan enterprise (“local content requirements”).It also discourages measures which limit acompany’s imports or set targets for the com-pany to export (“trade balancing requirements”).

Under the agreement, countries mustinform the WTO and fellow-members of allinvestment measures that do not conform withthe agreement. Developed countries have toeliminate these in two years (by the end of1996); developing countries have five years(to end of 1999); and least developedcountries seven.

The agreement establishes a Committee onTRIMS to monitor the implementation of thesecommitments. The agreement also says thatWTO members should consider, by 1 January2000, whether there should also be provisionson investment policy and competition policy.

What is this agreement called? Agreement onRules of Origin

What is this agreement called? Agreement onTrade-Related Investment Measures

The agreement applies to contracts worthmore than specified threshold values. For centralgovernment purchases of goods and services, thethreshold is SDR 130,000 (some $178,000 inMay 1997). For purchases of goods and servicesby sub-central government entities the thresholdvaries but is generally in the region of SDR200,000. For utilities, thresholds for goods andservices is generally in the area of SDR 400,000and for construction contracts, in general thethreshold value is SDR 5,000,000.

Dairy and bovine meat agreements:ended in 1997

The International Dairy Agreement andInternational Bovine Meat Agreementwere scrapped at the end of 1997. Countriesthat had signed the agreements decided that thesectors were better handled under theAgriculture and Sanitary and Phytosanitaryagreements. Some aspects of their work hadbeen handicapped by the small number of signa-tories. For example, some major exporters ofdairy products did not sign the Dairy Agreement,and the attempt to cooperate on minimumprices therefore failed – minimum pricing wassuspended in 1995.

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9. Plurilaterals:of minority interest

For the most part, all WTO members sub-scribe to all WTO agreements. After the UruguayRound, however, there remained four agree-ments, originally negotiated in the Tokyo Round,which have a narrower group of signatories andare known as “plurilateral agreements”. Allother Tokyo Round agreements became multi-lateral obligations (i.e. obligations for all WTOmembers) when the World Trade Organizationwas established in 1995. The four were:• trade in civil aircraft• government procurement• dairy products• bovine meat.The bovine meat and dairy agreements were ter-minated in 1997.

Fair trade in civil aircraft

The Agreement on Trade in CivilAircraft entered into force on 1 January 1980. Itnow has 27 signatories. The agreement elimi-nates import duties on all aircraft, other thanmilitary aircraft, as well as on all other productscovered by the agreement — civil aircraftengines and their parts and components, allcomponents and sub-assemblies of civil aircraft,and flight simulators and their parts and compo-nents. It contains disciplines on government-directed procurement of civil aircraft and induce-ments to purchase, as well as on governmentfinancial support for the civil aircraft sector.

Government procurement:opening up for competition

In most countries the government, and theagencies it controls are, together, the biggestpurchasers of goods of all kinds, ranging frombasic commodities to high-technology equip-ment. At the same time, the political pressure tofavour domestic suppliers over their foreign com-petitors can be very strong.

An Agreement on GovernmentProcurement was first negotiated during theTokyo Round and entered into force on 1January 1981. Its purpose is to open up as muchof this business as possible to international com-petition. It is designed to make laws, regulations,procedures and practices regarding governmentprocurement more transparent and to ensurethey do not protect domestic products or suppli-ers, or discriminate against foreign products orsuppliers.

The agreement has 27 members. It has twoelements — general rules and obligations, andschedules of national entities in each membercountry whose procurement is subject to theagreement. A large part of the general rules andobligations concern tendering procedures.

The present agreement and commitmentswere negotiated in the Uruguay Round. Thesenegotiations achieved a 10-fold expansion ofcoverage, extending international competition toinclude national and local government entitieswhose collective purchases are worth severalhundred billion dollars each year. The newagreement also extends coverage to services(including construction services), procurement atthe sub-central level (for example, states,provinces, departments and prefectures), andprocurement by public utilities. The new agree-ment took effect on 1 January 1996.

It also reinforces rules guaranteeing fair andnon-discriminatory conditions of internationalcompetition. For example, governments will berequired to put in place domestic procedures bywhich aggrieved private bidders can challengeprocurement decisions and obtain redress in theevent such decisions were made inconsistentlywith the rules of the agreement.

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What is this agreement called? Trade PolicyReview Mechanism

10. Trade policy reviews:ensuring transparency

Individuals and companies involved in tradehave to know as much as possible about theconditions of trade. It is therefore fundamentallyimportant that regulations and policies are trans-parent. In the WTO, this is achieved in two ways:governments have to inform the WTO and fel-low-members of specific measures, policies orlaws through regular “notifications”; and theWTO conducts regular reviews of individualcountries’ trade policies — the trade policyreviews. These reviews are part of the UruguayRound agreement, but they began several yearsbefore the round ended — they were an earlyresult of the negotiations. Participants agreed toset up the reviews at the December 1988 minis-terial meeting that was intended to be the mid-way assessment of the Uruguay Round. The firstreview took place the following year. Initiallythey operated under GATT and, like GATT, theyfocused on goods trade. With the creation of theWTO in 1995, their scope was extended, likethe WTO, to include services and intellectualproperty.

The importance countries attach to theprocess is reflected in the seniority of the TradePolicy Review Body — it is the WTO GeneralCouncil in another guise.

The objectives are:• to increase the transparency and understand-

ing of countries’ trade policies and practices,through regular monitoring

• to improve the quality of public and intergov-ernmental debate on the issues

• to enable a multilateral assessment of theeffects of policies on the world trading system.

The reviews focus on members’ own tradepolicies and practices. But they also take intoaccount the countries’ wider economic anddevelopmental needs, their policies and objec-tives, and the external economic environmentthat they face. These “peer reviews” by otherWTO members encourage governments to followmore closely the WTO rules and disciplines andto fulfil their commitments. In practice thereviews have two broad results: they enable out-siders to understand a country’s policies andcircumstances, and they provide feedback tothe reviewed country on its performance inthe system.

Over a period of time, all WTO members areto come under scrutiny. The frequency of thereviews depends on the country’s size:• The four biggest traders — the European

Union, the United States, Japan and Canada(the “Quad”) — are examined approximatelyonce every two years.

• The next 16 countries (in terms of their shareof world trade) are reviewed every four years.

• The remaining countries are reviewed every sixyears, with the possibility of a longer interimperiod for the least-developed countries.

For each review, two documents are prepared:a policy statement by the government underreview, and a detailed report written indepen-dently by the WTO Secretariat. These tworeports, together with the proceedings of theTrade Policy Review Body’s meetings are pub-lished shortly afterwards.

More cases can be good news

If the courts find themselves handling an increasing number of criminal cases, doesthat mean law and order is breaking down? Not necessarily. Sometimes it means thatpeople have more faith in the courts and the rule of law. They are turning to thecourts instead of taking the law into their own hands.

For the most part, that is what is happening in the WTO. No one likes to see coun-tries quarrel. But if there are going to be trade disputes anyway, it is healthier thatthe cases are handled according to internationally agreed rules. There are stronggrounds for arguing that the increasing number of disputes is simply the result ofexpanding world trade and the stricter rules negotiated in the Uruguay Round; andthat the fact that more are coming to the WTO reflects a growing faith in the system.

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1. The WTO’s’most individualcontribution’

Without a means of settling disputes, therules-based system would be worthless becausethe rules could not be enforced. The WTO’s pro-cedure underscores the rule of law, and it makesthe trading system more secure and predictable.The system is based on clearly-defined rules,with timetables for completing a case. First rul-ings are made by a panel and endorsed (orrejected) by the WTO’s full membership. Appealsbased on points of law are possible.

However, the point is not to make rulings.The priority is to settle disputes, through consul-tations if possible. By mid-March 2001, 38 outof 228 cases had been settled “out of court”,without going through the full panel process.

Principles: equitable, fast, effective,mutually acceptable

WTO members have agreed that if theybelieve fellow-members are violating trade rules,they will use the multilateral system of settlingdisputes instead of taking action unilaterally.That means abiding by the agreed procedures,and respecting judgements.

Typically, a dispute arises when one countryadopts a trade policy measure or takes someaction that one or more fellow-WTO membersconsiders to be breaking the WTO agreements,or to be a failure to live up to obligations. A thirdgroup of countries can declare that they have aninterest in the case and enjoy some rights.

A procedure for settling disputes existedunder the old GATT, but it had no fixed timeta-bles, rulings were easier to block, and many cas-es dragged on for a long time inconclusively. TheUruguay Round agreement introduced a morestructured process with more clearly definedstages in the procedure. It introduced greaterdiscipline for the length of time a case shouldtake to be settled, with flexible deadlines set invarious stages of the procedure. The agreementemphasizes that prompt settlement is essential ifthe WTO is to function effectively. It sets out inconsiderable detail the procedures and thetimetable to be followed in resolving disputes. Ifa case runs its full course to a first ruling, itshould not normally take more than about oneyear — 15 months if the case is appealed. Theagreed time limits are flexible, and if the case isconsidered urgent (e.g. if perishable goods areinvolved), then the case should take threemonths less.

The Uruguay Round agreement also made itimpossible for the country losing a case to blockthe adoption of the ruling. Under the previous

Chapter 3

Settling disputes

What is this agreement called? Understanding onRules and Procedures Governing the Settlement ofDisputes

The WTO’s’most individual contribution’

“No review of the achievements of theWTO would be complete without mention-ing the Dispute Settlement system, inmany ways the central pillar of the multi-lateral trading system and the WTO’s mostindividual contribution to the stability ofthe global economy. The new WTO systemis at once stronger, more automatic andmore credible than its GATT predecessor.This is reflected in the increased diversityof countries using it and in the tendencyto resolve cases ‘out of court’ before theyget to the final decision — 19 out of 71cases so far. The system is working asintended — as a means above all for con-ciliation and for encouraging resolution ofdisputes, rather than just for makingjudgements. By reducing the scope forunilateral actions, it is also an importantguarantee of fair trade for [less powerfulcountries].”

Renato Ruggiero17 April 1997

How long to settle a dispute?

These approximate periods for each stage of a dispute settlement procedure are tar-get figures — the agreement is flexible. In addition, the countries can settle their dis-pute themselves at any stage. Totals are also approximate.

60 days Consultations, mediation, etc

45 days Panel set up and panelists appointment

6 months Final panel report to parties

3 weeks Final panel report to WTO members

60 days Dispute Settlement Body adopts report (if noappeal)

Total = 1 year (without appeal)

60-90 days Appeals report

30 days Dispute Settlement Body adopts appeals report

Total = 1y 3m (with appeal)

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GATT procedure, rulings could only be adoptedby consensus, meaning that a single objectioncould block the ruling. Now, rulings are auto-matically adopted unless there is a consensus toreject a ruling — any country wanting to block aruling has to persuade all other WTO members(including its adversary in the case) to share itsview.

Although much of the procedure doesresemble a court or tribunal, the preferred solu-tion is for the countries concerned to discusstheir problems and settle the dispute by them-selves. The first stage is therefore consultationsbetween the governments concerned, and evenwhen the case has progressed to other stages,consultation and mediation are still alwayspossible.

How are disputes settled?

Settling disputes is the responsibility of theDispute Settlement Body (the General Council inanother guise). The Dispute Settlement Body hasthe sole authority to establish “panels” ofexperts to consider the case, and to accept orreject the panels’ findings or the results of anappeal. It monitors the implementation of therulings and recommendations, and has the pow-er to authorize retaliation when a country doesnot comply with a ruling.• First stage: consultation (up to 60 days).Before taking any other actions the countries indispute have to talk to each other to see if theycan settle their differences by themselves. If thatfails, they can also ask the WTO director generalto mediate or try to help in any other way.

Panels

Panels are like tribunals. But unlike in anormal tribunal, the panelists are usuallychosen in consultation with the countriesin dispute. Only if the two sides cannotagree does the WTO director generalappoint them. This only happens rarely.

Panels consist of three (occasionally five)experts from different countries whoexamine the evidence and decide who isright and who is wrong. The panel’sreport is passed to the Dispute SettlementBody, which can only reject the report byconsensus.

Panellists for each case can be chosenfrom a permanent list of well-qualifiedcandidates, or from elsewhere. They servein their individual capacities. They cannotreceive instructions from any government.

• Second stage: the panel (up to 45 daysfor a panel to be appointed, plus 6 months forthe panel to conclude). If consultations fail, thecomplaining country can ask for a panel to beappointed. The country “in the dock” can blockthe creation of a panel once, but when theDispute Settlement Body meets for a secondtime, the appointment can no longer be blocked(unless there is a consensus against appointingthe panel).Officially, the panel is helping the DisputeSettlement Body make rulings or recommenda-tions. But because the panel’s report can only berejected by consensus in the Dispute SettlementBody, its conclusions are difficult to overturn. Thepanel’s findings have to be based on the agree-ments cited.

The panel’s final report should normally begiven to the parties to the dispute within sixmonths. In cases of urgency, including thoseconcerning perishable goods, the deadline isshortened to three months.

The agreement describes in some detailhow the panels are to work. The main stagesare:• Before the first hearing: each side in the

dispute presents its case in writing to the panel.• First hearing: the case for the complain-

ing country and defence: the complainingcountry (or countries), the responding country,and those that have announced they have aninterest in the dispute, make their case at thepanel’s first hearing.

a “reasonable period of time” to do so. If it fails toact within this period, it has to enter into negotia-tions with the complaining country (or countries) inorder to determine mutually-acceptable compensa-tion — for instance, tariff reductions in areas ofparticular interest to the complaining side.

If after 20 days, no satisfactory compensationis agreed, the complaining side may ask theDispute Settlement Body for permission to imposelimited trade sanctions (“suspend concessions orobligations”) against the other side. The DisputeSettlement Body must grant this authorizationwithin 30 days of the expiry of the “reasonableperiod of time” unless there is a consensus againstthe request.

In principle, the sanctions should be imposedin the same sector as the dispute. If this is not prac-tical or if it would not be effective, the sanctions canbe imposed in a different sector of the same agree-ment. In turn, if this is not effective or practicableand if the circumstances are serious enough, theaction can be taken under another agreement. Theobjective is to minimize the chances of actionsspilling over into unrelated sectors while at thesame time allowing the actions to be effective.

In any case, the Dispute Settlement Bodymonitors how adopted rulings are implemented.Any outstanding case remains on its agendauntil the issue is resolved.

40

• Rebuttals: the countries involved submitwritten rebuttals and present oral argumentsat the panel’s second meeting.

• Experts: if one side raises scientific or othertechnical matters, the panel may consultexperts or appoint an expert review group toprepare an advisory report.

• First draft: the panel submits the descriptive(factual and argument) sections of its report tothe two sides, giving them two weeks to com-ment. This report does not include findingsand conclusions.

• Interim report: The panel then submits aninterim report, including its findings and con-clusions, to the two sides, giving them oneweek to ask for a review.

• Review: The period of review must notexceed two weeks. During that time, the pan-el may hold additional meetings with the twosides.

• Final report: A final report is submitted tothe two sides and three weeks later, it is circu-lated to all WTO members. If the paneldecides that the disputed trade measure doesbreak a WTO agreement or an obligation, itrecommends that the measure be made toconform with WTO rules. The panel may sug-gest how this could be done.

• The report becomes a ruling: The reportbecomes the Dispute Settlement Body’s rulingor recommendation within 60 days unless aconsensus rejects it. Both sides can appeal thereport (and in some cases both sides do).

Appeals

Either side can appeal a panel’s ruling.Sometimes both sides do so. Appeals have to bebased on points of law such as legal interpreta-tion — they cannot reexamine existing evidenceor examine new evidence.

Each appeal is heard by three members of apermanent seven-member Appellate Body set upby the Dispute Settlement Body and broadly rep-resenting the range of WTO membership.Members of the Appellate Body have four-yearterms. They have to be individuals with recog-nized standing in the field of law and interna-tional trade, not affiliated with any government.

The appeal can uphold, modify or reversethe panel’s legal findings and conclusions.Normally appeals should not last more than 60days, with an absolute maximum of 90 days.

The Dispute Settlement Body has to acceptor reject the appeals report within 30 days —and rejection is only possible by consensus.

The case has been decided:what next?

Go directly to jail. Do not pass Go, do notcollect ... Well, not exactly. But the sentimentsapply. If a country has done something wrong, itshould swiftly correct its fault. And if it continuesto break an agreement, it should offer compen-sation or suffer a suitable penalty that has somebite.

Even once the case has been decided, thereis more to do before trade sanctions (the conven-tional form of penalty) are imposed. The priorityat this stage is for the losing “defendant” tobring its policy into line with the ruling or recom-mendations. The dispute settlement agreementstresses that “prompt compliance with recom-mendations or rulings of the DSB [DisputeSettlement Body] is essential in order to ensureeffective resolution of disputes to the benefit ofall Members”.

If the country that is the target of the com-plaint loses, it must follow the recommendations ofthe panel report or the appeals report. It must stateits intention to do so at a Dispute Settlement Bodymeeting held within 30 days of the report’s adop-tion. If complying with the recommendation imme-diately proves impractical, the member will be given

d

d

dd

dd

d

d

d

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2. The panel process

The various stages a dispute can go through in the WTO. At all stages, countries in dispute are encouraged to consult each other in order to settle‘out of court’. At all stages, the WTO director general is available to offer his good offices, to mediate or to help achieve a conciliation.

Note: some specified times are maximums, some are minimums, some binding, some not

Consultations(Art 4)

Panel establishedby Dispute Settlement Body (DSB) (Art 6)

Terms of reference (Art 7)Composition (Art 8)

d d

d

d

Panel report issued to parties(Art 12.8; Appendix 3 par 12 (j))

dPanel report circulated to DSB(Art 12.9; Appendix 3 par 12 (k))

Panel examinationMeetings with parties (Art 12)

and third parties (Art 10)

dInterim review stage

Descriptive part of report sent to parties for comment (Art 15.1)Interim report sent to parties for comment (Art 15.2)

dImplementation

report by losing party of proposed implementationwithin ‘reasonable periof of time’ (Art 21.3)

dIn cases of non-implementation

parties negotiate compensationpending full implementation (Art 22.2)

dRetaliation

If no agreement on compensation, DSB authorizes retaliationpending full implementation (Art 22)

Cross-retaliation:same sector, other sector, other agreement (Art 22.3)

dDSB adopts panel/appellate report(s)including any changes to panel report made

by appellate report, (Art 16.1, 16.4 and 17.14)

During all stagesgood offices, conciliation

or mediation (Art 5)

Expert review group(Art 13; Appendix 4)

Review meeting with panelupon request

(Art 15.2)

Dispute overimplementation:

proceedings possible,including referral to initialpanel on implementation

(Art 21.5)

Possibility of arbitrationon level of suspension procedures

and principles of retaliation(Art 22.6 and 22.7)

Appellate review(Art 16.4 and 17)

Note:a panel can be composed(i.e. panelists chosen) upto about 30 days after itsestablishment (i.e. DSB’sdecision to have a panel)

60 days

by 2nd DSB meeting

0-20 days

20 days (+ 10 ifdirector general asked

to pick panel)

6 monthsfrom panel’s composition,

3 months if urgent

max 90 days

90 days

… 30 days for appellate report

TOTAL FORREPORT ADOPTION:usually up to 9 months(no appeal), or 12 months(with appeal) fromestablishment of panelto adoption of report(Art 20)

up to 9 monthsfrom panel’s

establishment

60 daysfor panel report,

unless appealed…

30 daysafter ‘reasonable period’

expires

‘REASONABLEPERIOD OF TIME’

determined by:member proposes,

DSB agrees; orparties in dispute agree;

or arbitrator(approx 15 months

if by arbitrator)

Time Target/ actual(0 = start period Date Actionof case)

–5years 1990 US Clean Air Act amended

–4 months September 1994 US restricts gasoline importsunder Clean Air Act

0 “60 days” 23 January 1995 Venezuela complains to DisputeSettlement Body, asks forconsultation with US

+1 month 24 February 1995 Consultations take place. Fail

+2 months 25 March 1995 Venezuela asks DisputeSettlement Body for a panel

+2 1/2 months “30 days” 10 April 1995 Dispute Settlement Body agreesto appoint panel. US does not block.

(Brazil starts complaint, requestsconsultation with US.)

+3 months 28 April 1995 Panel appointed. (31 May,panel assigned to Brazilian complaintas well)

+6 months 9 months 10-12 July and Panel meets(target is 6-9) 13-15 July 1995

+11 months 11 December 1995 Panel gives interim report to US,Venezuela and Brazil for comment

+1 year 29 January 1996 Panel circulates final reportto Dispute Settlement Body

+1 year,1 month 21 February 1996 US appeals

+1 year,3 months “60 days” 29 April 1996 Appellate Body submits report

+1 year, “30 days” 20 May 1996 Dispute Settlement Body adopts panel4 months and appeal reports

+1 year, 3 December 1996 US and Venezuela agree on what US10 1/2 months should do (implementation period

is 15 months from 20 May)

1 year, 9 January 1997 US makes first of monthly reports11 1/2 months to Dispute Settlement Body on status

of implementation

+2 years, 19-20 August 1997 US signs new regulation (19th).7 months End of agreed implementation period (20th)

3. Case study:the timetable in practice

On 23 January 1995, Venezuela complainedto the Dispute Settlement Body that the UnitedStates was applying rules that discriminatedagainst gasoline imports, and formally requestedconsultations with the United States. Just over ayear later (on 29 January 1996) the dispute

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panel completed its final report. (By then, Brazilhad joined the case, lodging its own complaintin April 1996. The same panel considered bothcomplaints.) The United States appealed. TheAppellate Body completed its report, and theDispute Settlement Body adopted the report on20 May 1996, one year and four months afterthe complaint was first lodged.

The United States and Venezuela then tooksix and a half months to agree on what theUnited States should do. The agreed period forimplementing the solution was 15 months fromthe date the appeal was concluded (20 May1996 to 20 August 1997). The DisputeSettlement Body has been monitoring progress— the United States submitted “status reports”on 9 January and 13 February 1997, for example.

The case arose because the United Statesapplied stricter rules on the chemical characteris-tics of imported gasoline than it did for domesti-cally-refined gasoline. Venezuela (and laterBrazil) said this was unfair because US gasolinedid not have to meet the same standards — itviolated the “national treatment” principle andcould not be justified under exceptions to normalWTO rules for health and environmental conser-vation measures. The dispute panel agreed withVenezuela and Brazil. The appeal report upheldthe panel’s conclusions (making some changesto the panel’s legal interpretation. The UnitedStates agreed with Venezuela that it wouldamend its regulations within 15 months and on26 August 1997 it reported to the DisputeSettlement Body that a new regulation had beensigned on 19 August.

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1. Overview

Work in the coming years in the WTO hastwo main components. One is the “built-inagenda” of the Uruguay Round agreements. Thisdeals with the programme for applying the vari-ous agreements and commitments, and in partic-ular the schedule for new or renewed negotia-tions in various subjects. The other component isa range of other issues, some old, some new tothe GATT-WTO system, that are being discussed.

There is no commitment to resume tariffnegotiations, but their central place in the sys-tem means that they are likely to take place atsome stage. Issues not covered in any depth inthe present agreements, that have been dis-

Chapter 4

Beyond the Agreements

cussed recently, are now under discussion, or arelikely to be discussed in the coming years,include:• regional economic groupings• trade and the environment• trade and investment• competition policy• transparency in government procurement• trade “facilitation” (simplifying trade proce-

dures, making trade flow more smoothlythrough means that go beyond the removal oftariff and non-tariff barriers)

• electronic commerceOne other topic has been discussed a lot in

the WTO recently. It is:• trade and labour rights

This is not on the WTO’s work agenda, butbecause of the amount of recent discussion it isincluded here to clarify the situation.

The ’built-in agenda’

1995• WTO created, new agreements come into force (1 January 1995)• Movement of natural persons: end of negotiations (by 28 July 1995)

1996• Government Procurement Agreement comes into force (1 January 1996)• Subsidies: review of use of provisions on R&D subsidies (by 1 July 1996)• Maritime services: market access negotiations end (30 June 1996, suspended to 2000)• Net food importing countries: Singapore ministerial meeting reviews possible negative effect of farm trade

reform on least developed countries and net food importers (December 1996)• Services and environment: deadline for working party report on modifications of GATS article 14 (on general

exceptions) (ministerial conference, December 1996)• Intellectual property: first review of application of provisions on geographical indications (by end of 1996)• Preshipment inspection: first of three-yearly reviews (by the ministerial conference) of the operation and imple-

mentation of the agreement (by end of 1996)• Government procurement of services: negotiations start (by end of 1996)

1997• Basic telecoms: negotiations end (15 February, postponed from 1996)• Financial services: negotiations end (30 December, postponed from 1996)• Technical barriers to trade: first of three-yearly reviews of the operation and implementation of the agreement

(by end of 1997)• Intellectual property: negotiations on creating a multilateral system of notification and registration of geographi-

cal indications for wines (start in 1997)• Textiles and clothing: Goods Council to review implementation of the agreement (by end of 1997, new phase

begins 1 January 1998. Textiles Monitoring Body to report to Goods Council by end of July 1997)

1998• Services (emergency safeguards): results of negotiations on emergency safeguards to take effect (by 1 January 1998)• Anti-dumping: examine standard of review, consider application to countervail cases (1 January 1998 or after)• Rules of Origin: Work programme on harmonization of rules of origin to be completed (20 July 1998)• Sanitary and phytosanitary measures: first review of the operation and implementation of the agreement (in 1998)• Government procurement: further negotiations start, for improving rules and procedures (by end of 1998)• Dispute settlement: full review of rules and procedures (by end of 1998)

1999• Intellectual property: review of certain exceptions to patentability and protection of plant varieties (1 January

1999 or after)• Intellectual property: examination of scope and methods for complaints where action has been taken that has not

violated agreements but could still impair the rights of the complaining country (“non-violation”) (by end of 1999)• Agriculture: negotiations initiated (one year before end of six-year implementation period))

2000• Services: new round of negotiations start (by 1 January 2000)• Services MFN exemptions: first review (by 1 January 2000)• Trade Policy Review Body: appraisal of operation of the review mechanism (by 1 January 2000)• Trade-related investment measures: review of the operation of the agreement and discussion on whether provi-

sions on investment policy and competition policy should be included in the agreement (by 1 January 2000, butworking parties set up 1997)

• Tariff bindings: review of definition of “principle supplier” having negotiating rights under GATT Art 28 on modi-fying bindings (1 January 2000)

• Intellectual property: first of two-yearly reviews of the implementation of the agreement (1 January 2000 or after)

2001• Textiles and clothing: Goods Council to review implementation of the agreement (by end of 2001, new phase

begins 1 January 2002. Textiles Monitoring Body to report to Goods Council by end of July 2001)

2004

• Textiles and clothing: Goods Council to review implementation of the agreement (by end of 2004, full integra-tion into GATT and agreement expires 1 January 2005. Textiles Monitoring Body to report to Goods Council byend of July 2004)

Sometime in the future: date note set• Intellectual property: negotiations on increasing protection for individual geographical indications for wines and

spirits• Services subsidies: negotiations

2. Already committed:the ’built-in agenda’

Many of the Uruguay Round agreements settimetables for future work. Some additions andmodifications have been made since then. This“built-in agenda” includes new negotiations insome areas, and assessments of the situation atthe specified times in others. Part of the pro-gramme has already been completed (for exam-ple the market access negotiations in basictelecommunications ended in February 1997).Here is a selection of the schedule, starting from1995 when the WTO came into being.

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45

The groupings that are important for theWTO are those involving the abolition or reduc-tion of barriers on trade within the group. TheWTO agreements recognize that regional arrange-ments and closer economic integration can bene-fit countries. It also recognizes that under somecircumstances regional trading arrangementscould hurt the trade interests of other countries.Normally, setting up a customs union or freetrade area would violate the WTO’s principle ofequal treatment for all trading partners (“most-favoured-nation”). But Article 24 of GATT allowsregional trading arrangements to be set up as aspecial exception, provided certain strict criteriaare met. In particular, the arrangements shouldhelp trade flow more freely among the countriesin the group without barriers being raised ontrade with the outside world. In other words,regional integration should complement the mul-tilateral trading system and not threaten it.

Article 24 says if a free trade area or cus-toms union is created, duties and other tradebarriers should be reduced or removed on sub-stantially all sectors of trade in the group. Non-members should not find trade with the groupany more restrictive than before the group wasset up.

Similarly, Article 5 of the GeneralAgreement on Trade in Services provides for eco-nomic integration agreements in services. Otherprovisions in the WTO agreements allow devel-oping countries to enter into regional or globalagreements that include the reduction or elimi-nation of tariffs and non-tariff barriers on tradeamong themselves.

On 6 February 1996, the WTO GeneralCouncil created the Committee on RegionalTrade Agreements. Its purpose is to examineregional groups and to assess whether they areconsistent with WTO rules. The committee isalso examining how regional arrangementsmight affect the multilateral trading system,and what the relationship between regionaland multilateral arrangements might be.

Customs unionsand free trade areas

Customs union: all members charge the same set ofcustoms duty rates on imports from non-members(e.g. European Union)

Free trade area: trade within the group is duty free,but each member can set its own duty rates onimports from non-members (e.g. North AmericanFree Trade Agreement, ASEAN Free Trade Area)

3. Regionalism:friends or rivals?

The European Union, the North AmericanFree Trade Agreement, the Association ofSoutheast Asian Nations, the South AsianAssociation for Regional Cooperation, theCommon Market of the South (Mercosur), theAustralia-New Zealand Closer EconomicRelations Agreement, etc. From 1947 to early1995, GATT and the WTO had been informed ofthe creation of more than 100 regional economicagreements (although some no longer exist orthey remain insubstantial).

One of the most frequently asked questionsis whether these regional groups help or hinderthe multilateral trading system of the WTO. Anew committee is keeping an eye on develop-ments.

Regional trading arrangements

“... To a much greater extent than is oftenacknowledged, regional and multilateral integra-tion initiatives are complements rather thanalternatives in the pursuit of more open trade.”

That is the conclusion of a 1995 study bythe WTO Secretariat. The report observes thatregional agreements have allowed groups ofcountries to negotiate rules and commitmentsthat go beyond what was possible at the timemultilaterally. In turn, some of these rules — forexample in services and intellectual property pro-tection — paved the way for the Uruguay Roundagreements. Some regional groups have agree-ments on environmental standards, investmentand competition policies; all three issues arementioned in the final Uruguay Round agree-ment and are being discussed in the WTO.

’Green’ provisions

Examples of provisions in the WTO agreements dealing with environmental issues

• GATT Article 20: policies affecting trade in goods for protecting human, animal orplant life or health are exempt from normal GATT disciplines under certain condi-tions.

• Technical Barriers to Trade (i.e. product and industrial standards), and Sanitary andPhytosanitary Measures (animal and plant health and hygiene): explicit recognitionof environmental objectives.

• Agriculture: environmental programmes exempt from cuts in subsidies

• Subsidies and Countervail: allows subsidies, up to 20% of firms’ costs, for adapt-ing to new environmental laws.

• Intellectual property: governments can refuse to issue patents that threatenhuman, animal or plant life or health, or risk serious damage to the environment(TRIPS Article 27).

• GATS Article 14: policies affecting trade in services for protecting human, animalor plant life or health are exempt from normal GATS disciplines under certain con-ditions.

4. The environment:a new high profile

The WTO has no specific agreement dealingwith the environment. However, a number of theWTO agreements include provisions dealing withenvironmental concerns. The objectives of sus-tainable development and environmental protec-tion are stated in the preamble to the AgreementEstablishing the WTO.

The increased emphasis on environmentalpolicies is relatively recent. At the end of theUruguay Round in 1994, trade ministers fromparticipating countries decided to begin a com-prehensive work programme on trade and envi-ronment in the WTO. They created the WTOCommittee on Trade and Environment. This hasbrought environmental and sustainable develop-ment issues into the mainstream of WTO work.

The committee:broad-based responsibility

The committee has a broad-based responsi-bility covering all areas of the multilateral tradingsystem — goods, services and intellectual prop-erty. Its duties are to study the relationshipbetween trade and the environment, and tomake recommendations about any changes thatmight be needed in the trade agreements.

The committee’s work is based on twoimportant principles:• The WTO is only competent to deal with

trade. In other words, in environmental issuesits only task is to study questions that arisewhen environmental policies have a signifi-cant impact on trade. The WTO is not an envi-ronmental agency. Its members do not want itto intervene in national or international envi-ronmental policies or to set environmentalstandards. Other agencies that specialize inenvironmental issues are better qualified toundertake those tasks.

• If the committee does identify problems, thesolutions must continue to uphold the princi-ples of the WTO trading system.

More generally — and this was recognizedin the results of the UN Conference onEnvironment and Development in Rio in 1992(the “Earth Summit”) — WTO members are con-

vinced that an open, equitable and non-discrimi-natory multilateral trading system has a key con-tribution to make to national and internationalefforts to better protect and conserve environ-mental resources and promote sustainable devel-opment.

The committee’s work programme focuseson 10 areas. Its agenda is driven by proposalsfrom individual WTO members on issues ofimportance to them. The following sections out-line some of the issues, and what the committeehas concluded so far:

WTO and environmental agreements:how are they related?

How do the WTO trading system and“green” trade measures relate to each other?What is the relationship between the WTOagreements and various international environ-mental agreements and conventions.

There are about 200 international agree-ments (outside the WTO) dealing with variousenvironmental issues currently in force. They arecalled multilateral environmental agreements(MEAs).

About 20 of these include provisions thatcan affect trade: for example they ban trade incertain products, or allow countries to restricttrade in certain circumstances. Among them are

46

the Montreal Protocol for the protection of theozone layer, the Basel Convention on the tradeor transportation of hazardous waste acrossinternational borders, and the Convention onInternational Trade in Endangered Species(CITES).

Briefly, the WTO’s committee says the basicWTO principles of non-discrimination and trans-parency do not conflict with trade measuresneeded to protect the environment, includingactions taken under the environmental agree-ments. It also notes that clauses in the agree-ments on goods, services and intellectual proper-ty allow governments to give priority to theirdomestic environmental policies.

The WTO’s committee says the most effec-tive way to deal with international environmentalproblems is through the environmental agree-ments. It says this approach complements theWTO’s work in seeking internationally agreedsolutions for trade problems. In other words,using the provisions of an international environ-mental agreement is better than one country try-ing on its own to change other countries’ envi-ronmental policies (see dolphin-tuna case study).

A key question

If one country believes another country’s trade damages the environment, what can itdo? Can it restrict the other country’s trade? If it can, under what circumstances? Atthe moment, there are no definitive legal interpretations, largely because the ques-tions have not yet been tested in a legal dispute either inside or outside the WTO. Butthe combined result of the WTO’s trade agreements and environmental agreementsoutside the WTO suggest:

1. First, cooperate: The countries concerned should try to cooperate to preventenvironmental damage.

2. The complaining country can act (e.g. on imports) to protect its owndomestic environment, but it cannot discriminate. Under the WTO agree-ments, standards, taxes or other measures applied to imports from the othercountry must also apply equally to the complaining country’s own products(“national treatment”) and imports from all other countries (“most-favoured-nation”).

3. If the other country is also a signatory, then what ever action the complain-ing country takes is probably not the WTO’s concern.

4. What if the other country has not signed? Here the situation is unclear andthe subject of debate. Some environmental agreements say countries that havesigned the agreement should apply the agreement even to goods and servicesfrom countries that have not. Whether this would break the WTO agreementsremains untested because so far no dispute of this kind has been brought to theWTO. One proposed way to clarify the situation would be to rewrite the rules tomake clear that countries can, in some circumstances, cite an environmentalagreement when they take action affecting the trade of a country that has notsigned. Critics say this would allow some countries to force their environmentalstandards on others.

5. When the issue is not covered by an environmental agreement, WTOrules apply. The WTO agreements are interpreted to say two important things.First, trade restrictions cannot be imposed on a product purely because of the wayit has been produced. Second, one country cannot reach out beyond its own terri-tory to impose its standards on another country.

47

The committee notes that actions taken toprotect the environment and having an impacton trade can play an important role in someenvironmental agreements, particularly whentrade is a direct cause of the environmentalproblems. But it also points out that traderestrictions are not the only actions that can betaken, and they are not necessarily the mosteffective. Alternatives include: helping countriesacquire environmentally-friendly technology, giv-ing them financial assistance, providing training,etc.

The problem should not be exaggerated. Sofar, no action affecting trade and taken under aninternational agreement has been challenged inthe GATT-WTO system. There is also a widelyheld view that actions taken under an environ-

mental agreement are unlikely to become aproblem in the WTO if the countries concernedhave signed the environmental agreement,although the question is not settled completely.The Trade and Environment Committee is moreconcerned about what happens when one coun-try invokes an environmental agreement to takeaction against another country that has notsigned the environmental agreement.

Disputes:where should they be handled?

Suppose a trade dispute arises because acountry has taken action on trade (for exampleimposed a tax or restricted imports) under an envi-ronmental agreement outside the WTO and anothercountry objects. Should the dispute be handledunder the WTO or under the other agreement? The

Trade and Environment Committee says that if a dis-pute arises over a trade action taken under an envi-ronmental agreement, and if both sides to the dis-pute have signed that agreement, then they shouldtry to use the environmental agreement to settle thedispute. But if one side in the dispute has not signedthe environment agreement, then the WTO wouldprovide the only possible forum for settling the dis-pute. The preference for handling disputes under theenvironmental agreements does not mean environ-mental issues would be ignored in WTO disputes.The WTO agreements allow panels examining a dis-pute to seek expert advice on environmental issues.

Eco-labelling:good, if it doesn’t discriminate

Labelling environmentally-friendly productsis an important environmental policy instrument.For the WTO, the key point is that labellingrequirements and practices should not discrimi-nate — either between trading partners (most-favoured nation treatment should apply), orbetween domestically-produced goods or ser-vices and imports (national treatment).

One area where the Trade and EnvironmentCommittee needs further discussion is how tohandle — under the rules of the WTO agree-ment on Technical Barriers to Trade — labellingused to describe whether for the way a productis produced (as distinct from the product itself) isenvironmentally-friendly.

Transparency: information withouttoo much paperwork

Like non-discrimination, this is an importantWTO principle. Here, WTO members should pro-vide as much information as possible about theenvironmental policies they have adopted oractions they may take, when these can have asignificant impact on trade. They should do thisby notifying the WTO, but the task should not bemore of a burden than is normally required forother policies affecting trade.

The Trade and Environment Committee saysWTO rules do not need changing for this pur-pose. The WTO Secretariat is to compile from itsCentral Registry of Notifications all informationon trade-related environmental measures thatmembers have submitted. These are to be put ina single database which all WTO members canaccess

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Domestically prohibited goods:dangerous chemicals, etc

This is one of the more contentious issues inthe Trade and Environment Committee. It is aconcern of a number of developing countrieswhich are worried that certain hazardous or toxicproducts are being exported to their marketswithout them being fully informed about theenvironmental or public health dangers the prod-ucts may pose. Developing countries want to befully informed so as to be in a position to decidewhether or not to import them.

A number of international agreements nowexist (e.g. the Basel Convention on the Controlof Transboundary Movements of HazardousWastes and their Disposal, and the LondonGuidelines for Exchange of Information onChemicals in International Trade). The WTO’sTrade and Environment Committee does notintend to duplicate their work but it also notesthat the WTO could play a complementary role.

Liberalization andsustainable development:good for each other

Does freer trade help or hinder environmen-tal protection? The Trade and EnvironmentCommittee is analysing the relationship betweentrade liberalization (including the Uruguay Roundcommitments) and the protection of the environ-ment. Members say the removal of trade restric-tions and distortions can yield benefits both forthe multilateral trading system and the environ-ment. Further work is scheduled.

Intellectual property, services:some scope for study

Discussions in the Trade and EnvironmentCommittee on these two issues have broken newground since there was very little understandingof how the rules of the trading system mightaffect or be affected by environmental policies inthese areas.

On services, the committee says furtherwork is needed to examine the relationshipbetween the General Agreement on Trade inServices (GATS) and environmental protectionpolicies in the sector.

The committee says that the Agreement onTrade-Related Aspects of Intellectual PropertyRights (TRIPS) helps countries obtain environ-mentally-sound technology and products. Morework is scheduled on this, including on the rela-tionship between the TRIPS Agreement and theConvention of Biological Diversity. More work isscheduled on this.

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The tuna-dolphin dispute

This case still attracts a lot of attention because of its implications for environmental disputes. It was handled under the old GATT disputesettlement procedure. Key questions are:

• can one country tell another what its environmental regulations should be? and

• do trade rules permit action to be taken against the method used to produce goods (rather than the quality of the goods themselves)?

What was it all about?

In eastern tropical areas of the Pacific Ocean, schools of yellowfin tuna often swim beneath schools of dolphins. When tuna is harvestedwith purse seine nets, dolphins are trapped in the nets. They often die unless they are released.

The US Marine Mammal Protection Act sets dolphin protection standards for the domestic American fishing fleet and for countries whosefishing boats catch yellowfin tuna in that part of the Pacific Ocean. If a country exporting tuna to the United States cannot prove to USauthorities that it meets the dolphin protection standards set out in US law, the US government must embargo all imports of the fish fromthat country. In this dispute, Mexico was the exporting country concerned. Its exports of tuna to the US were banned. Mexico complained in1991 under the GATT dispute settlement procedure.

The embargo also applies to “intermediary” countries handling the tuna en route from Mexico to the United States. Often the tuna isprocessed and canned in an one of these countries. In this dispute, the “intermediary” countries facing the embargo were Costa Rica, Italy,Japan and Spain, and earlier France, the Netherlands Antilles, and the United Kingdom. Others, including Canada, Colombia, the Republicof Korea, and members of the Association of Southeast Asian Nations, were also named as “intermediaries”.

The panel

Mexico asked for a panel in February 1991. A number of “intermediary” countries also expressed an interest. The panel reported to GATTmembers in September 1991. It concluded:

• that the US could not embargo imports of tuna products from Mexico simply because Mexican regulations on the way tuna was produceddid not satisfy US regulations. (But the US could apply its regulations on the quality or content of the tuna imported.) This has becomeknown as a “product” versus “process” issue.

• that GATT rules did not allow one country to take trade action for the purpose of attempting to enforce its own domestic laws in anothercountry — even to protect animal health or exhaustible natural resources. The term used here is “extra-territoriality”.

What was the reasoning behind this ruling? If the US arguments were accepted, then any country could ban imports of a product fromanother country merely because the exporting country has different environmental, health and social policies from its own. This would createa virtually open-ended route for any country to apply trade restrictions unilaterally — and to do so not just to enforce its own laws domesti-cally, but to impose its own standards on other countries. The door would be opened to a possible flood of protectionist abuses. This wouldconflict with the main purpose of the multilateral trading system — to achieve predictability through trade rules.

The panel’s task was restricted to examining how GATT rules applied to the issue. It was not asked whether the policy was environmentallycorrect or not. It suggested that the US policy could be made compatible with GATT rules if members agreed on amendments or reached adecision to waive the rules specially for this issue. That way, the members could negotiate the specific issues, and could set limits that wouldprevent protectionist abuse.

The panel was also asked to judge the US policy of requiring tuna products to be labelled “dolphin-safe” (leaving to consumers the choiceof whether or not to buy the product). It concluded that this did not violate GATT rules because it was designed to prevent deceptive adver-tising practices on all tuna products, whether imported or domestically produced.

PS. The report was never adopted

Under the present WTO system, if WTO members (meeting as the Dispute Settlement Body) do not by consensus reject a panel report after60 days, it is automatically accepted (“adopted”). That was not the case under the old GATT. Mexico decided not to pursue the case andthe panel report was never adopted even though some of the “intermediary” countries pressed for its adoption. Mexico and the UnitedStates held their own bilateral consultations aimed at reaching agreement outside GATT.

In 1992, the European Union lodged its own complaint. This led to a second panel report circulated to GATT members in mid 1994. Thereport upheld some of the findings of the first panel and modified others. Although the European Union and other countries pressed for thereport to be adopted, the United States told a series of meetings of the GATT Council and the final meeting of GATT Contracting Parties (i.e.members) that it had not had time to complete its studies of the report. There was therefore no consensus to adopt the report, a require-ment under the old GATT system. On 1 January 1995, GATT made way for the WTO.

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5. Investment, competition,procurement,simpler procedures

Ministers from WTO member-countriesdecided at the 1996 Singapore ministerial con-ference to set up three new working groups: ontrade and investment, on competition policy, andon transparency in government procurement.They also instructed the WTO Goods Council tolook at possible ways of simplifying trade proce-dures, an issue sometimes known as “tradefacilitiation”.

Investment and competition:what role for the WTO?

Work in the WTO on investment and com-petition policy issues so far has largely taken theform of specific responses to specific trade policyissues, rather than a look at the broad picture.

New decisions reached at the 1996 ministe-rial conference in Singapore change the perspec-tive. The ministers decided to set up two workinggroups to look more generally at the relation-ships between trade, on the one hand, andinvestment and competition policies, on theother.

The working groups’ tasks are analyticaland exploratory. They will not negotiate newrules or commitments. The ministers made clearthat no decision has been reached on whetherthere will be negotiations in the future, and thatany discussions cannot develop into negotiationswithout a clear consensus decision. Both work-ing groups must report to the General Councilwhich will decide at the end of 1998 whatshould happen next.

The ministers also recognized the workunderway in the UN Conference on Trade andDevelopment (UNCTAD) and other internationalorganizations. The working groups are to coop-erate with these organizations so as to makebest use of available resources and to ensurethat development issues are fully taken intoaccount.

An indication of how closely trade is linkedwith investment is the fact that about one-thirdof the $6.1 trillion total for world trade in goodsand services in 1995 was trade within companies— for example between subsidiaries in differentcountries or between a subsidiary and its head-quarters.

The close relationships between trade andinvestment and competition policy have longbeen recognized. One of the intentions, whenGATT was drafted in the late 1940s, was forrules on investment and competition policy toexist alongside those for trade in goods. (Theother two agreements were not completedbecause the attempt to create an InternationalTrade Organization failed.)

Over the years, GATT and the WTO haveincreasingly dealt with specific aspects of therelationships. For example, one type of tradecovered by the General Agreement on Trade inServices (GATS) is the supply of services by a for-eign company setting up operations in a hostcountry — i.e. through foreign investment. TheTrade-Related Investment Measures Agreementsays investors’ right to use imported goods asinputs should not depend on their export perfor-mance.

The same goes for competition policy. GATTand GATS contain rules on monopolies andexclusive service suppliers. The principles havebeen elaborated considerably in the rules andcommitments on telecommunications. Theagreements on intellectual property and servicesboth recognize governments’ rights to actagainst anti-competitive practices, and theirrights to work together to limit these practices.

Transparencyin government purchases:towards multilateral rules

The WTO already has an Agreement onGovernment Procurement. It is plurilateral —only some WTO members have signed it so far.The agreement covers such issues as transparen-cy and non-discrimination.

The decision by WTO ministers at the 1996Singapore conference does two things. It sets upa working group that is multilateral — itincludes all WTO members. And it focuses thegroup’s work on transparency in governmentprocurement practices. The group will not look atpreferential treatment for local suppliers, so longas the preferences are not hidden.

The first phase of the group’s work is tostudy transparency in government procurementpractices, taking into account national policies.The second phase is to develop elements forinclusion in an agreement.

Trade facilitation: a new high profile

Once formal trade barriers come down, oth-er issues become more important. For example,companies need to be able to acquire informa-tion on other countries’ importing and exportingregulations and how customs procedures arehandled. Cutting red-tape at the point wheregoods enter a country and providing easieraccess to this kind of information are two waysof “facilitating” trade.

The 1996 Singapore ministerial conferenceinstructed the WTO Goods Council to startexploratory and analytical work “on the simplifi-cation of trade procedures in order to assess thescope for WTO rules in this area”.

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6. Electronic commerce

A new area of trade involves goods crossingborders electronically. Broadly speaking, this isthe production, advertising, sale and distributionof products via telecommunications networks.The most obvious examples of products distri-buted electronically are books, music and videostransmitted down telephone lines or throughthe Internet.

At the 1998 ministerial meeting in Geneva,WTO members agreed to study trade issuesarising from global electronic commerce. Thework will take into account the economic,financial, and development needs of developingcountries, and recognizes that work is also beingundertaken in other international bodies.A report, possibly with recommendations,will be submitted to the third ministerialmeeting, which is scheduled to be heldin the United States in 1999.

In the meantime, WTO members alsoagreed to continue their current practice of notimposing customs duties on electronic transmis-sions.

7. Labour standards:not on the agenda

Strictly speaking, this should not be men-tioned here at all because there is no work onthe subject in the WTO, and it would be wrongto assume that it is a subject that “lies ahead”.But it has been discussed so extensively, thatsome clarification is needed. The key phrase is“core labour standards” — essential standardsapplied to the way workers are treated. The termcovers a wide range of things: from use of childlabour and forced labour, to the right to organizetrade unions and to strike.

Trade and labour rights:deferred to the ILO

Trade and labour standards is a highly con-troversial issue. At the 1996 SingaporeMinisterial Conference, WTO members definedthe organization’s role more clearly, identifyingthe International Labour Organization (ILO) asthe competent body to deal with labour stan-dards. There is currently no work on the subjectin the WTO.

The debate outside the WTO has raisedthree broad questions.• The legal question: should trade action be

permitted as a means of putting pressure oncountries considered to be severely violatingcore labour rights?

• The analytical question: if a country haslower standards for labour rights, do itsexports gain an unfair advantage?

• The institutional question: is the WTO theproper place to discuss labour?

All three questions have a political angle:whether trade actions should be used to imposelabour standards, or whether this would simplybe an excuse for protectionism.

The WTO agreements do not deal with anycore labour standards. But some industrialnations believe the issue should be studied bythe WTO as a first step toward bringing the mat-ter of core labour standards into the organiza-tion. WTO rules and disciplines, they argue,would provide a powerful incentive for membernations to improve workplace conditions.

Many developing and some developednations believe the issue has no place in the

The official answer

What the 1996 Singaporeministerial declaration sayson core labour standards

“We renew our commitment to the observance ofinternationally recognized core labour standards.The International Labour Organization (ILO) is thecompetent body to set and deal with these stan-dards, and we affirm our support for its work in pro-moting them. We believe that economic growth anddevelopment fostered by increased trade and furthertrade liberalization contribute to the promotion ofthese standards. We reject the use of labour stan-dards for protectionist purposes, and agree that thecomparative advantage of countries, particularlylow-wage developing countries, must in no way beput into question. In this regard, we note that theWTO and ILO Secretariats will continue their existingcollaboration.”

WTO framework. These nations argue thatefforts to bring labour standards into the arenaof multilateral trade negotiations are little morethan a smokescreen for protectionism. Many offi-cials in developing countries believe the cam-paign to bring labour issues into the WTO isactually a bid by industrial nations to underminethe comparative advantage of lower wage trad-ing partners.

In the weeks leading up to the 1996Singapore Ministerial Conference, and during themeeting itself, this was a hard-fought battle. Inthe end, WTO members said they were commit-ted to recognized core labour standards, andthat these standards should not be used for pro-tectionism. The economic advantage of low-wage countries should not be questioned, butthe WTO and ILO secretariats would continuetheir existing collaboration, the declaration said.The concluding remarks of the chairman,Singapore’s trade and industry minister, Mr YeoCheow Tong added that the declaration does notput labour on the WTO’s agenda. The countriesconcerned might continue their pressure formore work to be done in the WTO, but for thetime being there are no committees or workingparties dealing with the issue.

Other measures concerning developingcountries in the WTO agreements include:• extra time for developing countries to fulfil

their commitments (in most of the WTOagreements)

• provisions designed to increase developingcountries’ trading opportunities throughgreater market access (e.g. in textiles, ser-vices, technical barriers to trade)

• provisions requiring WTO members to safe-guard the interests of developing countrieswhen adopting some domestic or internation-al measures (e.g. in anti-dumping, safeguards,technical barriers to trade)

• provisions for various means of supportingdeveloping countries (e.g. in helping themdeal with commitments on animal and planthealth standards, technical standards, andassisting them in strengthening their domestictelecommunications sectors).

Legal assistance:a secretariat service

The WTO Secretariat has special legal advis-ers for assisting developing countries in any WTOdispute and for giving them legal counsel. Theservice is offered by the WTO’s TechnicalCooperation Division, and a number of develop-ing countries have already made use of it.

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1. Overview

About two thirds of the WTO’s around 140members are developing countries. They areexpected to play an increasingly important role inthe WTO because of their numbers and becausethey are becoming more important in the globaleconomy. The WTO deals with the special needsof developing countries in three ways:• the WTO agreements contain special provi-

sions on developing countries• the Committee on Trade and Development

oversees work in this area in the WTO• the WTO Secretariat provides technical assis-

tance (mainly training of various kinds) fordeveloping countries.

In the agreements:more time, better terms

The WTO agreements include numerousprovisions dealing with developing and least-developed countries.

The General Agreement on Tariffs andTrade (GATT, which deals with trade in goods)has a special section (Part 4) on Trade andDevelopment which includes provisions on theconcept of non-reciprocity in trade negotiationsbetween developed and developing countries —when developed countries grant trade conces-sions to developing countries they should notexpect the developing countries to make match-ing offers in return.

GATT also enables countries to grant specialconcessions to developing countries without hav-ing to do the same for the entire membership,known as “special and differential treatment”.The General Agreement on Trade in Services(GATS) similarly allows developing countriessome preferential treatment under the heading“Economic Integration” (Part 5 of GATS).

Chapter 5

Developing countries

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Least-developed countries:special focus

The least-developed countries receive extraattention in the WTO. When the Uruguay Roundended in Marrakesh in 1994, ministers suggest-ed that the lower tariffs and lower non-tariff bar-riers committed on products of interest to thisgroup of countries could be introduced ahead ofschedule. They recognized concern that some ofthe commitments could have a negative impacton some least-developed countries — for exam-ple reducing agricultural export subsidies couldraise the prices of some foods that these coun-tries import. The ministers therefore issued a“decision” (which also applies to any developingcountry that is a net importer of food) statingthat the situation should be monitored in theAgriculture Committee. The decision also statesthat these are eligible for aid to help themadjust, from other WTO members and from inter-national financial institutions such as the WorldBank and International Monetary Fund.

Two years later at their first ministerial con-ference in Singapore in 1996, WTO membersagreed on a Plan of Action for Least-DevelopedCountries. This envisages special efforts to assistthe world’s poorest countries, including help toimprove their ability to participate in the multilat-eral system. Developed countries promised toexamine how they could improve access to theirmarkets for imports from the least-developedcountries, including the possibility of removingtariffs completely.

In addition, a least-developed countryinvolved in a dispute can ask the WTO directorgeneral or the chairman of the DisputeSettlement Body to help settle the disputethrough conciliation, mediation or other means(known as providing “good offices”). This routeto settling a dispute is available in all cases, butnormally both sides have to agree. But if a leastdeveloped country makes the request after thefirst stage (i.e. the stage of consultationsbetween the two sides) has failed to produce asolution then the director general or DisputeSettlement Body chairman have to offer their ser-vices to try to help settle the dispute before arequest for a panel is made.

1997 event: high-level meetingof least-developed countries

One result of the action plan has been aministerial meeting of least-developed countriesheld in Geneva in October 1997. The WTO orga-nized the meeting jointly with the UNConference on Trade and Development (UNC-TAD) and the International Trade Centre (ITC).Also participating were a number of internationaleconomic and financial institutions such as theWorld Bank, International Monetary Fund andUN Development Programme. The meetingdeveloped a common, integrated approach forassisting these countries make more effective useof the trading system. It also provided anopportunity for more developed countriesto improve least-developed countries’ access totheir markets.

A ’maison’ in Geneva:being present is important,but not easy for all

The WTO’s official business takes placemainly in Geneva. So do the unofficial contactsthat can be equally important. But having a per-manent office of representatives in Geneva canbe expensive. Only about one-third of the 30 orso least-developed countries in the WTO havepermanent offices in Geneva, and they cover allUnited Nations activities as well as the WTO.

As a result of the negotiations to locate theWTO head quarters in Geneva, the Swiss govern-ment has agreed to provide free office space fordelegations from least-developed countries.Eventually this will take the form of a “MaisonUniverselle” (universal house), but before that iscompleted the Swiss government is already mak-ing rent-free space available.

A number of WTO members also providedfinancial support for ministers and accompanyingofficials from least-developed countries to helpthem attend the ministerial conferences inSingapore (1996) and Geneva (1998).

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2. Committees

Work specifically on developing countrieswithin the WTO itself can be divided into twobroad areas: (i) work of the WTO Committee onTrade and Development and its Subcommitteeon Least Developed Countries (this heading), and(ii) training for government officials (and others)by the WTO Secretariat as mandated by the com-mittee (next heading)

Trade and Development Committee

The WTO Committee on Trade andDevelopment has a wide-ranging mandate.Among the broad areas of topics it has tackledas priorities are: how provisions favouring devel-oping countries are being implemented, guide-lines for technical cooperation, increased partici-pation of developing countries in the tradingsystem, and the position of least developedcountries.

Member-countries also have to inform theWTO about special programmes involving tradeconcessions for products from developing coun-tries, and about regional arrangements amongdeveloping countries. The Trade andDevelopment Committee has handled notifica-tions of:• Generalised System of Preferences pro-

grammes (in which developed countries lowertheir trade barriers preferentially for productsfrom developing countries)

• preferential arrangements among developingcountries such as MERCOSUR (the SouthernCommon Market in Latin America), theCommon Market for Eastern and SouthernAfrica (COMESA), and the ASEAN Free TradeArea (AFTA)

Subcommitteeon Least Developed Countries

The Subcommittee on Least DevelopedCountries reports to the Trade and DevelopmentCommittee, but it is an important body in itsown right. Its work has focused on two relatedissues:• ways of integrating least developed countries

into the multilateral trading system• technical cooperation.

The subcommittee also examines periodical-ly how special provisions favouring least devel-oped countries in the WTO agreements are beingimplemented. It has identified two main contri-butions that the WTO could make to help leastdeveloped countries integrate better into themultilateral trading system:• to ensure least developed countries are the

priority for technical cooperation provided bythe WTO and that this focuses on helpingleast developed countries create the capacityto build the necessary institutions and ontraining the people whose expertise is needed

• preparing a WTO Plan of Action for Least-Developed Countries.

In 1997, the subcommittee’s work focusedlargely on the High-Level Meeting on Least-Developed Countries.

Analysis: the 1996 secretariat paper

The task of monitoring developing-countryissues includes economic analysis. In 1996 theTrade and Development Committee asked theWTO Secretariat to prepare a paper onParticipation of Developing Countries in WorldTrade: Overview of Major Trends and UnderlyingFactors. The paper focuses on the reasons whymost developing countries in Asia have a “verypositive” performance in international trade,while a number of the poorest countries aroundthe world have a “very disappointing” perfor-mance.

The developing countries’ share of worldgoods trade peaked in 1980 at 28% and thendeclined until the second half of the 1980s, thepaper observes. After that, petroleum prices bot-tomed out and the developing countries’ shareof goods trade started to grow again. At thesame time, developing countries as a whole haveenjoyed above average rates of economic growthand they have seen an increase in the proportionof manufactured goods in their exports — theyare becoming less dependent on exports of pri-mary products such as mining.

The paper also notes that evidence fromleast developed countries since 1980 shows thatcountries with strong export performance alsotend to have a larger share of manufacturedgoods among their merchandise exports, a largershare of manufacturing in their economies (grossdomestic product), and a larger share of invest-ment in GDP.

This paper looks at some factors which aregenerally believed to play a role in explaining thedegree of participation in world trade. Importantexternally are: access to foreign markets and tocapital inflows, for example. Important domesti-cally can be: trade policies, participation in theWTO, whether a country’s exports are concen-trated in a few products or a few markets, andmacroeconomic policies such as the governmentbudget, interest rates and exchange rates. All ofthese factors interact in complex ways, the papersays.

The committee’s reactions on the policyimplications fell broadly into two groups: somecountries said different domestic economic poli-cies were more important reasons for differentgrowth rates among developing countries; otherssaid trade barriers and other external factorswere more important.

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3. WTOtechnical cooperation

Technical cooperation is an area of WTOwork that is devoted entirely to helping develop-ing countries (and countries in transition fromcentrally-planned economies) operate successful-ly in the multilateral trading system. The objec-tive is to help build the necessary institutions andto train officials. The subjects covered deal bothwith trade policies and with effective negotia-tion.

Training, seminars and workshops

The WTO holds regular training sessions ontrade policy in Geneva. In addition, until early1999, the WTO organized almost 300 technicalcooperation activities, including seminars andworkshops in various countries and courses inGeneva.

Targeted are developing countries andcountries in transition from former socialist orcommunist systems, with a special emphasis onAfrican countries. Seminars have also beenorganised in Asia, Latin America, the Caribbean,Middle East and Pacific.

Funding for technical cooperation and train-ing comes from three sources: the WTO’s regularbudget, voluntary contributions from WTO mem-bers, and cost-sharing either by the host countryof an event or by other countries.

The present regular WTO budget for techni-cal cooperation is 636,000 Swiss francs andfor training 1.5 million Swiss francs.

Funding contributed by member countriestake many forms and can be administered by theWTO Secretariat or the donor country. They aremostly earmarked for specific activities under thejoint decision of the WTO Secretariat and thedonors (see also Organization: Special Policies).

The WTO Reference Center programme wasinitiated in 1997 with the objective of creating anetwork of computerized information centers inleast-developed and developing countries. TheCenters provide access to WTO information anddocuments through a print library, a CD-ROMcollection and through the Internet to WTOwebsites and databases. The Centers are locat-ed mainly in trade ministries and in the head-quarters of regional coordination organizations.The are currently over 100 Reference Centers.

“The GATT Uruguay Round deal produced losers as well as winners, andthe losers — mostly in Africa and the Caribbean — are some of the poor-est countries in the world.

As a result of the deal, the losers will face higher costs to feed their peopleas the price of cereals increases on world markets, they will face decliningterms of trade and they will see the value of their current trading prefer-ences with Europe undermined.”

Peter MaddenThe Poor Get Poorer, Christian Aid, 1994

“[The political message from the Singapore ministerial conference] shouldbe a message of unity among industrial and developing countries, and oneof determination to help the least-developed countries come in from themargins through bold and specific measures. This ... is a particularlyurgent need. An interdependent world means that we are all in the sameboat together, and no one can watch with equanimity while the other endof the boat sinks.”

Renato Ruggiero,Director general, World Trade Organization

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Participation in the system:opportunities and concerns

The WTO agreements, which were the out-come of the 1986-94 Uruguay Round of tradenegotiations, provide numerous opportunities fordeveloping countries to make gains. But a num-ber of problems will remain.

Among the gains are export opportunities.They include:• fundamental reforms in agricultural trade• the decision to phase out quotas on develop-

ing countries’ exports of textiles and clothing• reductions in customs duties on industrial

products• expanding the number of products whose cus-

toms duty rates are “bound” under the WTO,making the rates difficult to raise

• phasing out bilateral agreements to restricttraded quantities of certain goods — these“grey area” measures are not really recog-nized under GATT-WTO.

In addition, the Uruguay Round agreementswill boost global GDP and stimulate worlddemand for developing countries’ exports. Themarket access (reduced tariffs) part of theUruguay Round agreements for goods alone isestimated to give a lift to world GDP of $120 bil-lion to $315 billion (measured in 1992 dollars)by the time the agreements are fully implement-ed. Part of this increase will be spent on goodsand services exported by developing countries.

But concern has been expressed aboutexceptionally high tariffs on selected products(“tariff peaks”) in important markets will contin-ue to obstruct exports “of critical interest to”developing countries. Examples include tariffpeaks on textiles, clothing, and fish and fishproducts. The result is that on average industrialcountries made slightly smaller reductions intheir tariffs on products which are mainly export-ed by developing countries (37%), than onimports from all countries (40%). At the sametime, the potential for developing countries totrade with each other is also hampered by thefact that the highest tariffs are sometimes indeveloping countries themselves. But theincreased proportion of trade covered by “bind-ings” (committed ceilings that are difficult toremove) will add security to developing countryexports.

A related issue is “tariff escalation”, wherean importing country protects its processing ormanufacturing industry by setting lower dutieson materials imports and higher duties on fin-ished products. The situation is improving. Tariffescalation remains after the Uruguay Round, butit is less severe, with a number of developedcountries eliminating escalation on selectedproducts.

4. Issues

The Uruguay Round (1986-94) saw a shiftin North-South politics in the GATT-WTO system.Previously, developed and developing countrieshad tended to be in opposite groups, althougheven then there were exceptions. In the run upto the Uruguay Round, the line between the twobecame less rigid, and during the round differentalliances developed, depending on the issues.

In some issues, the divide still appears clear— in textiles and clothing, and some of thenewer issues debated in the WTO, for example.In many others, the developing countries do notnecessarily share common interests and they maynot adopt common positions.

Around the world, the issues are hotlydebated: this is a summary of some of the issuesdiscussed.

“... In many instances translating these multilateral trade rights into con-crete trade advantages requires action by governments with active supportof the business community. Many developing countries and countries intransition have found themselves poorly equipped in terms of institutionsand human and financial resources dedicated to this objective.”

UNCTAD/WTOStrengthening the participation of developing countries in world trade

and the multilateral trading system, 1996

“The industrialized countries, which make up only 20% of the member-ship of GATT, will appropriate 70% of the additional income to be gener-ated by the implementation of the Uruguay Round.”

Luis Fernando JaramilloFormer chair, Group of 77, and Colombian ambassador

’Peaks’ and ’escalation’:what are they?

Tariff peaks: Most import tariffs are now quite low,particularly in developed countries. But for a fewproducts that governments consider to be sensitive— they want to protect their domestic producers —tariffs remain high. These are “tariff peaks”. Someaffect exports from developing countries.

Tariff escalation: If a country wants to protect itsprocessing or manufacturing industry, it can set lowtariffs on imported materials used by the industry(cutting the industry’s costs) and set higher tariffs onfinished products to protect the goods produced bythe industry. This is “tariff escalation”. Whenimporting countries escalate their tariffs in this way,they make it more difficult for countries producingraw materials to process and manufacture value-added products for export. Tariff escalation exists inboth developed and developing countries. Slowly, itis being reduced.

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At the same time, developing countries areincreasing their contribution to the multilateraltrading system. The UNCTAD/WTO report notesa dramatic increase in the binding of developingcountry tariffs from 13% to 61% of industrialproduct imports, offering the potential for devel-oping countries to increase their exports to eachother, particularly in Asia.

Erosion of preferences:

An issue that has worried developing coun-tries has been the erosion of preferences — spe-cial tariff concessions granted by developedcountries on imports from certain developingcountries become less meaningful if the normaltariff rates are cut because the differencebetween the normal and preferential rates isreduced.

Just how valuable these preferences are is amatter of debate. Unlike regular WTO tariff com-mitments, they are not “bound” under WTOagreements and therefore they can be changedeasily. They are often given unilaterally, at theinitiative of the importing country. This makestrade under preferential rates less predictablethan under regular bound rates which cannot beincreased easily. Ultimately countries stand togain more from regular bound tariff rates.

But some countries and some companieshave benefited from preferences. The gains varyfrom product to product, and they also dependon whether producers can use the opportunity toadjust so that they remain competitive after thepreferences have been withdrawn.

The ability to adapt: the supply-side

Can developing countries benefit from thechanges? Yes, but only if their economies arecapable of responding. This depends on a combi-nation of actions: from improving policy-makingand macroeconomic management, to boostingtraining and investment. The least developedcountries are worst placed to make the adjust-ments because of lack of human and physicalcapital, poorly developed infrastructures, poorlyfunctioning institutions, and political instability.

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Q&AA declarationof independence

What do the lower-incomedeveloping countries really gainfrom the Uruguay Round?

A stronger rule-based system, more powerwhen the WTO handles disputes, a strengthenedhand in introducing domestic reforms, specialprovisions for developing countries in the WTOagreements. A declaration of economic andpolitical independence.

Is it true, as some claim, that Africaand the LDCs will be net losersfrom the Uruguay Round?

The claim simply does not stand up underclose examination. Indeed, from some points ofview, some of these countries may well end upamong the principal gainers from the UruguayRound. They are likely to gain from a strength-ened multilateral trading system, from thephase-out of quantitative restriction on textilesand other products, and from the opportunitiesto use new WTO obligations to promote badlyneeded domestic economic reforms.

What about the erosionof preference margins?

This is one of two main arguments behindthe claim that the LDCs are losers. But the quan-titative importance of preference erosion appearslikely to be modest at most. This does not meanthat preference erosion will have no effect. Therewill be particular products in particular marketswhere holding on to market share will be diffi-cult. But the evidence simply does not supportthe view that preference erosion will lead toimportant overall losses for Africa and the LDCs.

What about net food-importing countries?

This is the other basis for the claim thatmany lower-income developing countries maylose from the Uruguay Round. The argument isthat the agricultural reforms will lead to increas-es in world market prices for certain food prod-ucts, as producers in the OECD countries respondto reductions in support. This possibility is explic-itly recognized in a ministerial decision whichestablished, among other things, an annualreview process by the Committee on Agriculture.

While there are differences of opinion asregards both the potential for important foodprice increases from the Agreement onAgriculture, and the extent to which some suchincreases may have already occurred, it is clearthat the situation will be monitored closely bythe WTO Committee on Agriculture.

How can the lowerincome developing countries exploitthe improved market access negotiatedin the Uruguay Round, and how canthey diversify their exports?

This is a genuine challenge. The answer liesin a combination of measures: from improvingpolicy-making and macroeconomic management,to boosting training and investment. It is nowwidely accepted that the major obstacle toincreased trade and growth in the lower-incomedeveloping countries is the inadequate responseof domestic producers (“supply constraints”) tomarket access opportunities abroad. Removing,or at least significantly reducing, domestic supplyconstraints in these countries must be a priority.

Some common themesUnderlying many of these answers area number of common themes:

Trade rules are important for small andmedium-size countries. The WTO providesa rules-based multilateral trading system.All members have both rights and obliga-tions. The alternative is bilateral commer-cial relations based on economic andpolitical power — small countries arethen at the mercy of the larger tradingpowers. Differences in influence betweenindividual countries remain, of course, buteven the smallest WTO member has awide range of rights which are enforce-able under the WTO’s impartial disputesettlement procedures.Open, market oriented economies aremore likely to be successful. Countrieswith heavy government intervention andhigh trade barriers are less likely to besuccessful in promoting economic devel-opment.Obligations don’t have to be a burden —they can be helpful. Every nation rightlywants to safeguard its economic sover-eignty. Most would rather introduce eco-nomic reforms on their own, without out-side pressure. But the reforms can bedelayed or blocked by domestic specialinterest groups which put their own eco-nomic welfare ahead of that of the coun-try as a whole. In such cases, the need tofulfil multilateral obligations can assist agovernment to promote economic growthand development through economicreform. In similar ways, the opportunity toengage in reciprocal trade negotiationswith WTO partners — a country succeed-ing in obtaining lower trade barriers forsome of its exports in return for loweringits own barriers on imports, for example— can also help a government overcomedomestic special interest groups interest-ed only in protecting their own privilegedpositions at the expense of the rest of thepopulation.If low-income countries gain, everyonegains. The developed countries and themore advanced developing countries havea stake in the future economic perfor-mance of the lower-income developingcountries. It is therefore in their interestto open wider their markets for goods andservices that the lower-income countriesexport or could export in the future. It isalso in their interest to provide generousassistance to help the lower-incomedeveloping countries overcome domesticsupply constraints and to participate morefully in WTO activities.

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Is it true that the intellectual property(TRIPS) Agreement protects mainlythe intellectual property of largemultinational firms — the bigpharmaceutical companies,firms producing seeds and otheragricultural inputs? Will the TRIPSAgreement worsen inequalities? After all,the developing countries did not wantto negotiate intellectual property.

Developing countries are not only users offoreign intellectual property. They are also pro-ducers and could gain from intellectual propertyprotection. Many were already introducing intel-lectual property protection regimes before theend of the Uruguay Round.

Also, It is in the nature of GATT/WTO nego-tiations that all participants are expected tomake contributions. Each country makes conces-sions in certain areas of the negotiations in orderto obtain what it wants in other areas.Developing countries were not demandeurs inthe Trade-related Intellectual Property Rights(TRIPS) negotiations, but their acceptance of theTRIPS agreement was an important contributionto the success of the Uruguay Round and thecreation of the WTO — which they clearly con-sider to be in their interests, given that mosteither already are full members or are seekingto join.

According to the WHO millionsof people in developing countrieswill die as a result of higher pricesfor new patent-protected vaccines.Some critics say the TRIPS agreementincreases inequalities between countriesat different stages of their development,and also that bio-technologicaldevelopments could worsenthe imbalance. Is WTO concerned?

The TRIPS agreement itself will not have amajor impact since pharmaceutical patent pro-tection is now standard in most countries andonly a few essential drugs will be affected. The

agreement does allow governments to takeaction against abuse of patent protection, andfor seeds farmers’ privilege cannot be prevented.

Most developing countries already providepatent protection for pharmaceutical products —at present only 11 WTO members have notifiedthat they do not yet do so. Several have decidedto introduce protection more rapidly thanrequired by the TRIPS agreement. Therefore, thenumber of countries affected is quite limited andthe impact in these countries will be gradual,only becoming fully applicable by 2015.

How can lower-income countries maketheir voices heard, defend their interestsand influence the evolution of the WTO?

By participating actively. But that requireshuman and financial resources in capitals and inGeneva. The problem is seen as a priority in theWTO.

This is a major challenge because of theway the WTO functions. The WTO is “member-driven” because the member countries play anactive role in the WTO’s day-to-day activities. Tooperate effectively — to be heard and to defendthe country’s interests — in that working envi-ronment requires money and people. One stepthat can help is for groups of countries to coordi-nate their efforts and work out a division oflabour.

What is the WTO doing about it?

Nearly 200 technical cooperation activitiesin two years, conferences, financial support fromricher WTO members to help least developedcountries participate.

Africa continues to be covered in large mea-sure under two specific programmes: theIntegrated Technical Assistance Programme inSelected Least-Developed and other AfricanCountries, and the series of regional seminarsorganized jointly by the WTO, the ACPSecretariat and the European Union.

In 1995, Norway provided US$2.5 millionfor the establishment of a WTO Trust Fund forthe least developed countries. A number of highlevel conferences have also been organized.

An outcome of the 1996 SingaporeMinisterial Conference was a decision to hold ahigh-level meeting in Geneva in early 1997, tofoster an integrated approach to the trade-relat-ed aspects of the least-developed countries’ eco-nomic development.

What might the least developed countriesdo about it?

Along with domestic adjustments, theymight also treat as a priority their preparationsfor future negotiations.

The objective is for a country to express itspoint of view effectively, to defend its interests inthe WTO, to influence the WTO’s future evolu-tion. and to influence future negotiations.Institution-building and human resource devel-opment in trade policy are the keys. This must bea priority goal of external financial assistance,technical cooperation and — most important ofall — each country’s own efforts.

Least developed countries should identifyissues of particular importance to them. Forexample they could seek tariff negotiationsaimed at:• reducing remaining tariff peaks (exceptionally

high tariffs protecting sensitive sectors) in thedeveloped countries

• reducing the relatively high levels of protec-tion in several of the more advanced develop-ing countries

• reducing tariff escalation in all their actual andpotential trading partners.

The Uruguay Round saw progress in each ofthese, but there is considerable scope for furtherprogress in the next negotiating round.

Voting is possible, too

The WTO continues GATT’s tradition ofmaking decisions not by voting but byconsensus. This allows all members toensure their interests are properly consid-ered even though, on occasion, they maydecide to join a consensus in the overallinterests of the multilateral tradingsystem.

Where consensus is not possible, the WTOagreement allows for voting — a votebeing won with a majority of the votescast and on the basis of “one country, onevote”.

The WTO Agreement envisages four spe-cific situations involving voting:

• An interpretation of any of the multilat-eral trade agreements can be adoptedby a majority of three-quarters of WTOmembers.

• The Ministerial Conference can waivean obligation imposed on a particularmember by a multilateral agreement,also through a three-quarters majority.

• Decisions to amend provisions of themultilateral agreements can be adoptedthrough approval either by all membersor by a two-thirds majority dependingon the nature of the provision con-cerned. But the amendments only takeeffect for those WTO members whichaccept them.

• A decision to admit a new member istaken by a two-thirds majority in theMinisterial Conference, or the GeneralCouncil in between conferences.

1. Whose WTO is it anyway?

The WTO is run by its member governments.All major decisions are made by the membership asa whole, either by ministers (who meet at least onceevery two years) or by officials (who meet regularlyin Geneva). Decisions are normally taken by consen-sus.

In this respect, the WTO is not like someother international organizations such as theWorld Bank and International Monetary Fund. Inthe WTO, power is not delegated to a board ofdirectors, and the bureaucracy has no influenceover individual countries’ policies (althoughsome analytical comments are made in the regu-lar trade policy reviews).

When WTO rules impose disciplines oncountries’ policies, that is the outcome of negoti-ations among WTO members. The rules areenforced by the members themselves underagreed procedures that they negotiated.Sometimes enforcement includes the threat oftrade sanctions. But those sanctions are imposedby member countries, not by the organization.This is quite different from other agencies whichcan, for example, withhold credit from a country.

Chapter 6

The Organization

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Reaching decisions by consensus among140 or more members can be difficult. Its mainadvantage is that decisions made this way aremore acceptable to all members. And despite thedifficulty, some remarkable agreements havebeen reached. Nevertheless, proposals for thecreation of a smaller executive body — perhapslike a board of directors each representing differ-ent groups of countries — are heard periodically.But for now, the WTO is a member-driven, con-sensus-based organization.

Highest authority:the Ministerial Conference

So, the WTO belongs to its members. Thecountries make their decisions through variouscouncils and committees, whose membershipconsists of all WTO members. Topmost is theministerial conference which has to meet at leastonce every two years. (Ministers met in Singaporein December 1996 and Switzerland in 1998.)The 1999 meeting will be in the United States.The ministerial conference can take decisionson all matters under any of the multilateral tradeagreements.

Second level: General Councilin three guises

Day-to-day work in between the ministerialconferences is handled by three bodies:• The General Council• The Dispute Settlement Body• The Trade Policy Review Body

All three are in fact the same — theAgreement Establishing the WTO states they areall the General Council, although they meetunder different terms of reference. Again, allthree consist of all WTO members. They report tothe Ministerial Conference.The General Council acts on behalf of the minis-terial conference on all WTO affairs. It meets asthe Dispute Settlement Body and the TradePolicy Review Body to oversee procedures forsettling disputes between members and to ana-lyze members’ trade policies.

WTO Structure

All WTO members may participate in all councils, etc, except Appellate Body, Dispute Settlement panels, Textiles Monitoring Body, and plurilateral committees and councils.

General Council meeting asDispute Settlement Body

General Council meeting asTrade Policy Review Body

General Council

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Committees on

Market AccessAgricultureSanitary and PhytosanitaryMeasuresTechnical Barriers to TradeSubsidies and CountervailingMeasuresAnti-Dumping PracticesCustoms ValuationRules of OriginImport LicensingTrade-Related Investment MeasuresSafeguards

Textiles Monitoring Body

Working parties on

State-Trading Enterprises

Information TechnologyAgreement Committee

Ministerial Conference

Council forTrade in Goods

Council forTrade-Related Aspects

of IntellectualProperty Rights

Council forTrade in Services

Appellate BodyDispute Settlement panels

Committees on

Trade and EnvironmentTrade and Development

Subcommittee on Least-Developed Countries

Regional Trade ArrangementsBalance of Payments RestrictionsBudget, Finance and Administration

Working parties on

Accession

Working groups on

The Relationship between Tradeand Investment

The Interaction betweenTrade and Competition Policy

Transparency inGovernment Procurement

Committees on

Trade in Financial ServicesSpecific Commitments

Working parties on

Professional ServicesGATS Rules

Plurilaterals

Committee on Trade in Civil Aircraft

Committee on GovernmentProcurement

Key

Reporting to General Council (or a subsidiary)Reporting to Dispute Settlement BodyPlurilateral committees inform the General Council of their activitiesalthough these agreements are not signed by all WTO members

The General Council also meets as the Trade Policy Review Body and Dispute Settlement Body

Goods Council’s committees

Market accessAgricultureSanitary and phytosanitary measuresTextiles Monitoring BodyTechnical barriers to tradeSubsidies and countervailAnti-dumpingCustoms valuationRules of originImport licensingInvestment measuresSafeguardsNotifications (working group)State trading (working party)Preshipment inspection (working party)

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Third level: councils for eachbroad area of trade, and more

Three more councils, each handling a differ-ent broad area of trade, report to the GeneralCouncil:• The Council for Trade in Goods (Goods

Council)• The Council for Trade in Services (Services

Council)• The Council for Trade-Related Aspects of

Intellectual Property (TRIPS Council)As their names indicate, the three are

responsible for the workings of the WTO agree-ments dealing with their respective areas of trade.Again they consist of all WTO members. The threealso have subsidiary bodies (see below).

Six other bodies report to the GeneralCouncil. The scope of their coverage is smaller,so they are “committees”. But they still consistof all WTO members. They cover issues such astrade and development, the environment,regional trading arrangements, and administra-tive issues. The Singapore Ministerial Conferencein December 1996 decided to create new work-ing groups to look at investment and competi-tion policy, transparency in government procure-ment, and trade facilitation.

Two more subsidiary bodies dealing withthe plurilateral agreements (which are not signedby all WTO members) keep the General Councilinformed of their activities regularly.

Fourth level: down to the nitty-gritty

Each of the higher level councils has sub-sidiary bodies. The Goods Council has 11 com-mittees dealing with specific subjects (such asagriculture, market access, subsidies, anti-dump-ing measures and so on). Again, these consist ofall member countries. Also reporting to theGoods Council is the Textiles Monitoring Body,which consists of a chairman and 10 membersacting in their personal capacities, and groupsdealing with notifications (governments inform-ing the WTO about current and new policies ormeasures) and state trading enterprises.

The Services Council has seen somechanges in its subsidiary bodies. The completionof the basic telecommunications negotiations inFebruary 1997 meant the end of the negotiatinggroup, at least until the new services negotiatinground starts in 2000. The same could happen tothe financial services negotiating group later in1997. In theory, the negotiating group on mar-itime services still exists, but with the talks sus-pended until 2000, the group is unlikely to beactive. Other subsidiaries deal with professionalservices, GATS rules and specific commitments.

At the General Council level, the DisputeSettlement Body also has two subsidiaries:the dispute settlement “panels” of expertsappointed to adjudicate on unresolved disputes,and the Appellate Body that deals with appeals.

Alternative view

“The WTO will likely suffer from slow andcumbersome policy-making and manage-ment — an organization with more than120 member countries cannot be runby a ’committee of the whole’. Mass man-agement simply does not lend itself tooperational efficiency or serious policydiscussion.Both the IMF and the World Bank have anexecutive board to direct the executiveofficers of the organization, with perma-nent participation by the major industrialcountries and weighted voting. The WTOwill require a comparable structure tooperate efficiently. ... [But] the politicalorientation of smaller ... members remainsstrongly opposed.”

Jeffrey J SchottInstitute for International Economics,

Washington

Same people, different hats?

No, not exactly.

Formally, all of these councils and committees consist of the full membership of theWTO. But that does not mean they are the same, or that the distinctions are purelybureaucratic.

In practice the people participating in the various councils and committees are differ-ent because different levels of seniority and different areas of expertise are needed.

Heads of missions in Geneva (usually ambassadors) normally represent their countriesat the General Council level. Some of the committees can be highly specialised andsometimes governments send expert officials from their capital cities to participate inthese meetings.

Even at the level of the Goods, Services and TRIPS councils, many delegations assigndifferent officials to cover the different meetings.

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’HODs’ and other bods:where the action is

It could be said that important break-throughs are rarely made in any of these formalbodies, least of all in the higher level councils.With consensus and without voting, informalconsultations within the WTO — and even out-side — play a vital role in bringing a vastlydiverse membership round to an agreement.

One step away from the formal meetingsare informal meetings that still include the fullmembership, such as those of the Heads ofDelegations (HOD). More difficult issues have tobe thrashed out in smaller groups. For much ofthe Uruguay Round, a system of so-called GreenRoom meetings was established, involving per-haps as many as 40 countries most interested inthe particular issue under discussion.

Occasionally a deadlock can only be brokenin a small group of two, three or four countries,sometimes at meetings they have organizedthemselves in their own countries. In a marketaccess negotiation, where the final outcome is amultilateral package of individual countries’commitments, those commitments are the resultof numerous bilateral, informal bargainingsessions. (Examples include the traditionaltariff negotiations, and talks on basic telecom-munications in services and on informationtechnology products.)

To this day, informal consultations in vari-ous forms play a vital role in allowing consensusto be reached, but they never appear in organi-zation charts. They are not separate from the for-mal meetings, however. They are necessary formaking formal decisions in the councils and com-mittees. Nor are the formal meetings unimpor-tant. They are the forums for exchanging views,putting countries’ positions on the record, andultimately for confirming decisions. The art ofachieving agreement among all WTO members isto strike an appropriate balance, so that a break-through achieved among only a few countriescan be acceptable to the rest of the membership.

2. Membership, alliancesand bureaucracy

All members have joined the system as aresult of negotiation and therefore membershipmeans a balance or rights and obligations. Theyenjoy the privileges that other member-countriesgive to them and the security that the tradingrules provide. In return, they had to make com-mitments to open their markets and to abide bythe rules — those commitments were the resultof the membership (or “accession”) negotia-tions.

For most WTO members, the negotiationstook place under the old GATT system. Mostautomatically became founder-members of theWTO when it was established on 1 January 1995because they had signed the Uruguay Roundagreement in Marrakesh in April 1994. Somejoined GATT after April 1994 but before theWTO was set up and they also joined the WTOautomatically. Another small group had partici-pated in the Uruguay Round but did not com-plete their membership negotiations until 1995,when they, too, joined. All of these countries areconsidered “original” WTO members.

As new members join, new applicantsapproach the WTO. By March 2001, the WTOhad 140 members with over 30 applicants nego-tiating membership (they are WTO “observers”).

How to join the WTO:the accession process

Any state or customs territory having fullautonomy in the conduct of its trade policies mayjoin (“accede to”) the WTO, but WTO membersmust agree on the terms. Broadly speaking theapplication goes through four stages:• First, “tell us about yourself”. The gov-

ernment applying for membership has todescribe all aspects of its trade and economicpolicies that have a bearing on WTO agree-ments. This is submitted to the WTO in amemorandum which is examined by the work-ing party dealing with the country’s applica-tion. These working parties are open to allWTO members.

• Second, “work out with us individuallywhat you have to offer”. When the work-ing party has made sufficient progress on prin-ciples and policies, parallel bilateral talksbegin between the prospective new memberand individual countries. They are bilateralbecause different countries have differenttrading interests. These talks cover tariff ratesand specific market access commitments, andother policies in goods and services. The newmember’s commitments are to apply equallyto all WTO members under normal non-dis-crimination rules, even though they are nego-tiated bilaterally. In other words, the talksdetermine the benefits (in the form of exportopportunities and guarantees) other WTOmembers can expect when the new memberjoins. (The talks can be highly complicated. Ithas been said that in some cases the negotia-tions are almost as large as an entire round ofmultilateral trade negotiations.)

• Third, “let’s draft membership terms”.Once the working party has completed itsexamination of the applicant’s trade regime,and the parallel bilateral market access nego-tiations are complete, the working party final-izes the terms of accession. These appear in areport, a draft membership treaty (“protocolof accession”) and lists (“schedules”) of themember-to-be’s commitments.

• Finally, “the decision”. The final package,consisting of the report, protocol and lists ofcommitments, is presented to the WTOGeneral Council or the Ministerial Conference.If a two-thirds majority of WTO members votein favour, the applicant is free to sign the pro-tocol and to accede to the organization. Insome cases, the country’s own parliament orlegislature has to ratify the agreement beforemembership is complete.

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Representing us ...

The work of the WTO is undertaken by rep-resentatives of member governments but itsroots lie in the everyday activity of industry andcommerce. Trade policies and negotiating posi-tions are prepared in capitals, usually taking intoaccount advice from private firms, business orga-nizations, farmers, consumers and other interestgroups.

Most countries have a diplomatic mission inGeneva, sometimes headed by a special ambas-sador to the WTO. Officials from the missionsattend meetings of the many councils, commit-tees, working parties and negotiating groups atWTO headquarters. Sometimes expert represen-tatives are sent directly from capitals to put for-ward their governments’ views on specific ques-tions.

With the expanding range of issues coveredby the WTO and the increasing technicality ofsome subjects, many less developed countriesface difficulty in assigning enough suitably quali-fied officials for WTO work. In the WTO this isconsidered a priority problem that needs to betackled (see section on Development).

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Representing groups of countries ...

Increasingly, countries are getting togetherto form groups and alliances in the WTO. Insome cases they even speak with one voice usinga single spokesman or negotiating team.

This is partly the natural result of economicintegration — more customs unions, free tradeareas and common markets are being set uparound the world. It is also seen as a means forsmaller countries to increase their bargainingpower in negotiations with their larger tradingpartners. Sometimes when groups of countriesadopt common positions consensus can bereached more easily. Sometimes the groups arespecifically created to compromise and break adeadlock rather than to stick to a common posi-tion. But there are no hard and fast rules aboutthe impact of groupings in the WTO.

The largest and most comprehensive groupis the European Union (for legal reasonsknown officially as the “EuropeanCommunities” in WTO business) and its 15member states. The EU is a customs union with asingle external trade policy and tariff. While themember states coordinate their position inBrussels and Geneva, the European Commissionalone speaks for the EU at almost all WTO meet-ings. The EU is a WTO member in its own rightas are each of its member states.

A lesser degree of economic integration has sofar been achieved by WTO members in theAssociation of South East Asian Nations(ASEAN) — Malaysia, Indonesia, Singapore,Philippines, Thailand and Brunei Darussalam. (Thecurrent seventh member, Vietnam, is applying tojoin the WTO.) Nevertheless, they have many com-mon trade interests and are frequently able to coor-dinate positions and to speak with a single voice.The role of spokesman rotates among ASEANmembers and can be shared out according to topic.

Among other groupings which occasionallypresent unified statements are the LatinAmerican Economic System (SELA) and theAfrican, Caribbean and Pacific Group(ACP). More recent efforts at regional economicintegration have not yet reached the point wheretheir constituents frequently have a singlespokesman on WTO issues. Examples include theNorth American Free Trade Agreement:NAFTA (Canada, US and Mexico) and MERCO-SUR: the Southern Common Market (Brazil,Argentina, Paraguay and Uruguay).

The Cairns Group

From four continents, members ranging from OECDcountries to the least developed

ArgentinaAustraliaBrazilCanadaChileColombiaFijiHungaryIndonesiaMalaysiaNew ZealandParaguay (joined in 1997)PhilippinesThailandUruguay

The Quad

Some of the most difficult negotiations have neededan initial breakthrough in talks among the fourlargest members:

CanadaEuropean UnionJapanUnited States

These are the “Quadrilaterals” or the “Quad”.

A well-known alliance of a different kind isthe Cairns Group. It was set up just before theUruguay Round began in 1986 to argue for agri-cultural trade liberalization. The group becamean important third force in the farm talks andremains in operation. Its members are diverse,but sharing a common objective — that agricul-ture has to be liberalized — and the commonview that they lack the resources to competewith larger countries in domestic and export sub-sidies.

The WTO Secretariat and budget

The WTO Secretariat is located in Geneva.It has around 500 staff and is headed by adirector general. Its responsibilities:• Administrative and technical support for WTO

delegate bodies (councils, committees, work-ing parties, negotiating groups) for negotia-tions and the implementation of agreements.

• Technical support for developing countries,and especially the least-developed.

• Trade performance and trade policy analysesby WTO economists and statisticians.

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• Assistance from legal staff in the resolution oftrade disputes involving the interpretation ofWTO rules and precedents.

• Dealing with accession negotiations for newmembers and providing advice to govern-ments considering membership.

Some of the WTO’s divisions are responsiblefor supporting particular committees: theAgriculture Division assists the committees onagriculture and on sanitary and phytosanitarymeasures, for example. Other divisions providebroader support for WTO activities: technical

3. The Secretariat

The WTO Secretariat is headed by a director general. Divisions come directly under the director general or one of his deputies.Director general Office of the director general: administrative support for (disputes) Appellate Body, Textiles Monitoring Body

Information and Media Relations DivisionMinisterial Sessions: Substantive issues related to sessions of the Ministerial Conference and follow-upSecretariat Working Group on the Integrated Framework and LDC Issues: Coordination of the Integrated Framework (IF) and other LDC-related activities with core Agencies and development partners.

Deputy director generalA. Ouedraogo Development Division: trade and development, least-developed countries, regionalism

External Relations Division: Relations with intergovernmental and non-governmental organizationsInformatics DivisionTextiles DivisionTrade and Finance Division: TRIMS, balance of payments, links with IMF and World Bank, etc

Deputy director generalP.-H. Ravier Accessions Division

Intellectual Property Division: TRIPS, competition and government procurementLanguage Services and Documentation DivisionStatistics DivisionTechnical Cooperation DivisionTrade and Environment Division: Trade and environment, technical barriers to trade, etcTraining Division

Deputy director generalA. Rodriguez Mendoza Agriculture and Commodities Division: agriculture, sanitary and phytosanitary measures, etc

Council Division: General Council, Dispute Settlement Body, etcEconomic Research and Analysis DivisionRules Division: anti-dumping, subsidies, safeguards, state trading, civil aircraft, etc Trade Policy Review Division

Deputy director generalA. Stoler Administration and General Services Division: budget, finance, administration and human resources matters

Legal Affairs Division: Dispute settlement, etcMarket Access Division: Goods Council, market access, customs valuation, non-tariff measures, import icensing, rules of origin, preshipment inspectionTrade in Services: GATS etc.

cooperation, economic analysis, and information,for example.

The WTO budget is 116 million Swiss francswith individual contributions calculated on thebasis of shares in the total trade conducted byWTO members. Part of the WTO budget alsogoes to the International Trade Centre.

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4. Special policies

The WTO’s main functions are to do withtrade negotiations and the enforcement of nego-tiated multilateral trade rules (including disputesettlement). Special focus is given to four partic-ular policies supporting these functions:• Assisting developing and transition economies• Specialized help for export promotion• Cooperation in global economic policy-making• Routine notification when members introduce

new trade measures or alter old ones.

Assisting developingand transition economies

Developing countries make up about three-quarters of the total WTO membership. Togetherwith countries currently in the process of “transi-tion” to market-based economies, they areexpected to play an increasingly important role inthe WTO as membership expands.

Therefore, much attention is paid to thespecial needs and problems of developing andtransition economies. The WTO Secretariat orga-nizes a number of programmes to explain howthe system works and to help train governmentofficials and negotiators. Some of the events arein Geneva, others are held in the countries con-cerned. A number of the programmes are orga-nized jointly with other international organiza-tions. Some take the form of training courses. Inother cases individual assistance might beoffered.

The subjects can be anything from help indealing with negotiations to join the WTO andimplementing WTO commitments to guidance inparticipating effectively in multilateral negotia-tions. Developing countries, especially the least-developed among them, are helped with tradeand tariff data relating to their own export inter-ests and to their participation in WTO bodies.

Training courses take place in Geneva threetimes a year for officials of developing countries.Since their inception under GATT in 1955 and upto March 2001, the courses have been attendedby about 1,700 trade officials. In addition, since1991, 190 officials from the economies in transi-tion have been trained through special acces-sion-oriented courses(see also Developing countries).

Specialized help for exporting:the International Trade Centre

The International Trade Centre was estab-lished by GATT in 1964 at the request of thedeveloping countries to help them promote theirexports. It is jointly operated by the WTO and theUnited Nations, the latter acting through UNC-TAD (the UN Conference on Trade andDevelopment).

The centre responds to requests from devel-oping countries for assistance in formulating andimplementing export promotion programmes aswell as import operations and techniques. It pro-vides information and advice on export marketsand marketing techniques. It assists in establish-ing export promotion and marketing services,and in training personnel required for these ser-vices. The Centre’s help is freely available to theleast-developed countries.

The WTO in global economicpolicy-making

An important aspect of the WTO’s mandateis to cooperate with the International MonetaryFund, the World Bank and other multilateralinstitutions to achieve greater coherence inglobal economic policy-making. A separateMinisterial Declaration was adopted at theMarrakesh Ministerial Meeting in April 1994 tounderscore this objective.

The declaration envisages an increased con-tribution by the WTO to achieving greater coher-ence in global economic policy-making. It recog-nizes that different aspects of economic policyare linked, and it calls on the WTO to develop itscooperation with the international organizationsresponsible for monetary and financial matters— the World Bank and the InternationalMonetary Fund.

The declaration also recognizes the contri-bution that trade liberalization makes to thegrowth and development of national economies.It says this is an increasingly important compo-nent in the success of the economic adjustmentprogrammes which many WTO members areundertaking, even though it may often involvesignificant social costs during the transition.

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Transparency (1):keeping the WTO informed

Often the only way to monitor whethercommitments are being implemented fully is byrequiring countries to notify the WTO promptlywhen they take relevant actions. Many WTOagreements say member governments have tonotify the WTO Secretariat of new or modifiedtrade measures. For example, details of any newanti-dumping or countervailing legislation, newtechnical standards affecting trade, changes toregulations affecting trade in services, and lawsor regulations concerning the intellectual proper-ty agreement — they all have to be notified tothe appropriate body of the WTO. Special groupsare also established to examine new free-tradearrangements and the trade policies of countriesjoining as new members.

Transparency (2):keeping the public informed

On July 18, 1996 the WTO’s GeneralCouncil agreed to make more information aboutWTO activities available publicly and decidedthat public information, including derestrictedWTO documents, would be accessible on-line.The General Council also agreed that effortsshould be made to derestrict new documentsmore quickly. The objective is to make moreinformation available to the public, including tonon-governmental organizations interested inthe WTO. Some documents, such as trade policyreview reports and dispute settlement panelreports, are made public almost immediately.Others, including minutes of meetings, are con-sidered for derestriction after about six months,but WTO members can decide that the informa-tion should remain confidential for longer. Manyof these documents are now available on theWTO website.