International Trade and the WTO

1. International Trade and the WTO By WTO Cell Trade Development Authority of Pakistan 3rd September 2008

2. International Trade and the WTO • WTO – An Introduction • GATT: Negotiations on Agriculture in the WTO NAMA Negotiations in the WTO • GATS • TRIPS • Regulatory Framework in Pakistan & NTC • Regionalism • WTO’s Dispute Settlement Mechanism

3. WTO – An Introduction By Abdul Aleem Khan Economist, Advisory Unit, WTO Cell, TDAP

4. WTO – An Introduction • The World Trade Organization (WTO) is the principal international organization governing world trade. • It was established in 1995 as a successor institution to the General Agreement on Tariffs and Trade (GATT) which was a post-World War II institution. • WTO has 153 member countries, representing 95% of world trade. • It aims to provide fair and stable conditions for the conduct of international trade with a view to encouraging trade and investment that will raise living standards worldwide. • WTO is a forum where countries continuously negotiate exchanges of trade concessions to further lower the trade barriers all over the world.

5. WTO – An Introduction(cont…. 2) • Decisions within the WTO are made by member countries, not by staff and by consensus, not by formal vote. • High-level policy decisions are made by the Ministerial Conference, which is a body of political representatives (trade ministers) which meet at least every two years. • Operational decisions are made by the General Council ( representative from each member country) which meets monthly and chair rotates annually.

6. WTO – An Introduction(cont…. 3) • GATT came into force in1948 with 23 founding members. • It was intended to promote nondiscrimination in trade among countries, with the view that open trade was crucial for economic stability and peace. • Different trade rounds were held so as to liberalize the trade.

7. GATT and WTO Trade Rounds • 1st Round -Geneva in 1947 23 Countries participated Decided to cut 45,000 trade tariffs • 2nd Round - France in 1949 13 Countries participated Proposed further reductions in 5,000 tariffs • 3rd Round -Britain in 1950-51 38 Countries participated Proposed further reductions in 8,700 tariffs • 4th Round -Geneva in 1955-56 26 Countries participated Proposed to Cut Custom Tariffs with a total value of US$2.5 bn • 5th Round -(Dillion Round) in Geneva in 1960-62 26 Countries participated Proposed to cut 4,400 tariffs covering US$.9 bn worth of trade • 6th Round -(Kennedy Round) in Geneva in 1964-67 62 Countries participated Decided on substantial tariffs reductions on all industrial products covering US$40bn of trade.

8. GATT and WTO Trade Rounds … Cont… 2 • 7th Round -(Tokyo Round) in Geneva in 1973-79 102 countries participated -Customs cuts averaging 20% to 30% covering US$300 bn - Improved framework for subsidies, customs rates and technical obstacles to trade. • 8th Round -(Uruguay Round) started in Uruguay ended in Morroco 1986-94 123 countries participated The round led to the creation of WTO, and extended the range of trade negotiations, leading to major reductions in tariffs (about 40%) and agricultural subsidies, an agreement to allow full access for textiles and clothing from developing countries, and an extension of intellectual property rights. • 9th Round -(Doha Round) started - in Doha in 2001 ( at forth Ministerial Conference) - in Cancun in 2003 (at fifth Ministerial Conference) - in Hong Kong in 2005 (at sixth Ministerial Conference) - in Geneva in July 2006 (at seventh Ministerial Conference Not yet concluded. 141 countries participated, Subject covered are tariffs, non-tariffs measures, agriculture, labour standards, environment, competition, investment, transparency, patents etc.

9. WTO Agreements • Agreement on Agriculture • Agreement on Textiles & Clothing (ATC) • Agreement on Subsidies and Countervailing Measures • Agreement on Anti-Dumping • Agreement on Safeguards • Agreement on Trade Related Investment Measures (TRIMs) • Agreement on Custom Valuation • Agreement on Technical Barriers to Trade (TBT) and on Sanitary and Phytosanitary Measures (SPS) • Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) • General Agreement on Trade in Services (GATS) • Understanding on Dispute Settlement (DSU) • Special & Differential Treatment ( S& D )

10. GATTNegotiations on Agriculture in the WTO Presentation by: Mujeeb Ahmed Khan Head WTO Cell Trade Development Authority of Pakistan

11. Agreement on Agriculture - Objectives • To establish a fair and market-oriented agriculture trading system. • To initiate a reform process through negotiation of commitments on support and protection. • To establish strengthened and operationally effective rules and disciplines. • To provide for substantial progressive reduction in support and protection. • To correct and prevent restrictions and distortions in world agricultural markets. • To achieve specific binding commitments in ;market access, domestic support and export competition.

12. Special and Differential treatment for developing countries • S & D is an integral element of the negotiations, and taking into account the possible negative effect of the implementation of the reform programme on least-developed and net food-importing developing countries. • While implementing their commitments the developed countries to take fully into account the particular needs and conditions of developing countries. • Greater market access for agriculture products of particular interest to developing countries. • Fullest liberalization of trade in tropical products and products of importance to the diversification of production from the growing of illicit narcotic crops.

13. Reduction commitments in the Uruguay Round Developed Developing (1995-2000)(1995-2004) • Market Access Average tariff cuts for all ag.products -36% -24% Minimum tariff cuts per product -15% -10% • Domestic Support Total cuts in aggregate measurement of support -20% -13% • Export Subsidies Value cut -36% -24% Volume Cut -21% -14%

14. Domestic Support • Green Box - Research, Extension, PDS,Decoupled payments etc. • Blue Box - Production Limiting Subsidies ; • Amber Box - AMS-subject to reduction commitments; - Product specific (MSP) - Non product specific (input subsidies; fertilizers, power, irrigation etc

15. Domestic Support (contd) • De minimis support; Allowed WTO Members to exempt from the calculation of the AMS, below a certain threshold level; - Developed countries: 5% of the value of agricultural production of the product concerned and 5% of total value of agricultural production. - Developing countries: 10% of the value…………..

16. The Doha Mandate for negotiations “We commit ourselves to comprehensive negotiations aimed at: • Substantial improvement in MARKET ACCESS; • Reductions of, with a view to phasing out, all forms of EXPORT SUBSIDIES; • Substantial reductions in trade distorting DOMESTIC SUPPORT.

17. Negotiating priorities for Pakistan • Highest possible tariff reductions. (even U.S proposal for 55%-90% for developed and slightly less for developing) • Maximum tariff caps.(75% for developed and 100% for developing) • Expansion of tariff rate quotas. (from the current 5% to 20% of domestic consumption, with and end-date agreed for their eventual elimination)

18. Negotiating priorities for Pakistan (contd) • The TRQ in-quota tariffs should be eliminated where substantial under fill exists. • Sensitive products must be limited to maximum of 1% -2% of all tariff lines. • Special products must be limited to 2% - 3% of all tariff lines. • A Special Safeguard Mechanism, with strict and transparent guidelines.

19. Negotiating priorities for Pakistan (contd) • Elimination of Tariff escalation through the use of progressively higher tariff reductions for more processed products. • Most restrictive overall level of support. (minimally acceptable position is the G-20 proposal of 80% reduction for EU and 70% for the U.S). • Product specific caps for the Amber Box and the Blue Box.

20. Negotiating priorities for Pakistan (contd) • Capping of the Blue box at 2.5% of the value of production. • Commitment to review the Green and Blue box criteria to ensure that these programs are truly non-trade distorting and production limiting. • Possibility of a cap on Green Box expenditures. • Elimination of all forms of export subsidies, including subsidy elements of export credits, state trading and food aid.

24. NAMA Negotiationsin the WTO By Tippu Sultan Head Advisory Unit, WTO Cell TDAP

25. WTO NAMA Negotiations : (Non Agriculture Market Access)Challenges and opportunities for Pakistan The Doha Ministerial Declaration requires that negotiations should aim by modalities to be agreed upon to • Reduce or eliminate tariffs • Reduce or eliminate tariff peaks • Reduce or eliminate non tariff barriers • Not exclude any products • Allow less than full reciprocity to developing countries in making reduction commitments.

26. NAMA Tariff Cut formulas • The United States (US) has proposed to use simple Swiss formula with a negotiated coefficient. • The US elaborated that there could be two coefficients, one separately applied by developing countries and another applied by developed countries. • The Simple Swiss formula is expressed as follows: Final tariff = Coefficient (a) x Initial tariff Coefficient (a) + Initial tariff Where the: Initial tariff is the bond rate, as listed in national schedules, and Coefficient is a figure to be negotiated

27. Different Proposals • EU and US proposal: In 6th Ministerial Conference at Hong Kong, the EU and US proposed using coefficient of a = 10 for developed countries and a coefficient of a = 15 for developing countries. • THE ABI formula: The second proposal has been presented by Argentina, Brazil and India, modified Swiss-type formula, which incorporates national tariff averages into the formula reducing the impact of the coefficient and establishing a linkage between tariff reductions and a country’s current tariff levels. It is expressed as follows: Final tariff = (Coefficient x National average of bond rates) x Initial tariff (Coefficient x National average of bond rates) + Initial tariff Where the: Initial tariff is the bond rate, as listed in national schedules, and Coefficient is a figure to be negotiated National average of bond rates is calculated using all non-agricultural bond duties

28. Different Proposals …. Cont… • Coefficient proposed by Pakistan: At the mini-ministerial meeting held in China, Pakistan put forward a proposal to bridge the difference between the supporters of the Simple Swiss formula and the supporters of the ABI formula. The coefficients proposed by Pakistan would be around a = 6 for developed countries and around a = 30 for developing countries

29. Pakistan’s position after NAMA Negotiations Pakistan is fairly comfortably place in this negotiation, because: • Our tariff rates are relatively low • We are hardly giving any subsidy • Our reliance on custom revenue has reduced drastically and constitutes only 15% of our total revenue.

30. Conclusions • In order to get greater market access, we would like to see: • Tariff reductions by other developing countries • Reduction / elimination of peak tariffs in developed countries in products of our export interest; most of their tariffs are otherwise very low. • Reduction / elimination of non tariff barriers in all countries

31. GATS Presentation by: Mujeeb Ahmed Khan Head WTO Cell Trade Development Authority of Pakistan

32. General Agreement on Trade in Services (GATS) The Service Agreement rests on three pillars. • The first is the framework Agreements containing the basic obligations which apply to all members. • The second concerns national schedules of commitments. • The third is a number of measures addressing the special situations of individual services sectors.

33. WTO classification of Services Sectors • The four modes: Mode I: cross-border -- when a Pakistani firm delivers to an overseas customer without leaving home. Some examples of this mode are internet, telecom, financial services etc. Mode II: consumption abroad -- when a foreign consumer is in the Pakistani market and receives or uses a service. Examples of this mode include tourism, education, machinery sent for repairs etc.

34. WTO Classification – (contd) • Mode III: Commercial presence -- when the Pakistani firm establishes an office abroad; Illustrations of Mode-III are branches set up by banks and Hotel chains etc. • Mode IV: movement of natural persons -- when Pakistani service employees travel to another country to provide a service. Examples of this mode are Doctors, engineers, skilled or semi skilled laborers etc.

35. Commitments on services in the WTO • Each member will submit schedules of commitments pertaining to different services sectors on each of the four modes. • These schedules will then be negotiated in a request and offer format resulting in submission of revised schedules. • 11 sectors were approved by the ECC for the proposal • Pakistan has submitted its initial offer on 9 services sectors including 68 sub-sectors (on 24th May 2005).

36. ECC approved Sectors: (Marked Red were not in the initial offer) • Business Services • Communication Services • Construction and related engineering Services • Distribution services • Educational services • Environmental services • Financial services • Health and related social services • Tourism and travel related services • Recreational, cultural and sporting services • Transport services

37. SALIENT FEATURES OF ECC APPROVED OFFER: • ‘Commercial presence' - subject to incorporation in Pakistan with maximum foreign equity participation of70% is inscribed against a particular sector or subsector. • Establishments to be located in Export processing zones may negotiate higher than 70 percent limits on foreign investment . • Profits of foreign-invested companies will be fully repatriable except as provided in specific sector commitments.

38. SALIENT FEATURES OF ECC APPROVED OFFER (contd) • No legal restriction on acquisition of real estate by foreign-invested judicial entities or natural persons. • Subsidies, if any, will be granted to domestic companies only. • Movement of natural persons - Unbound, except for measures concerning the entry or temporary stay of natural persons falling in specified categories. E.g.Intracorporate transferees, Business visitors, Independent Professionals etc...

39. SALIENT FEATURES OF ECC APPROVED OFFER (contd) vii. The commitments relating to ‘Professional services’ apply only to countries that provide similar commitments to Pakistan except natural persons qualified in the United Kingdom and the USA. viii. In specific sectors; Access granted both to natural persons and companies based on economic needs test. Criteria include rate of growth of the services sector recorded by the national accounts in the previous 5 years.

40. Pakistan’s offer • SALIENT FEATURES OF INITIAL OFFERS: • ‘Commercial presence' - subject to incorporation in Pakistan with maximum foreign equity participation of60% is inscribed against a particular sector or subsector. In certain sub sectors e.g. Engineering services it is 51%. • In specific sectors; Access granted both to natural persons and companies based on economic needs test.

41. SALIENT FEATURES OF INITIAL OFFERS (contd) iii. ‘Presence of natural persons’ – in certain sub sectors there are conditions that qualifications for foreign service suppliers will be set by the concerned Pakistani Association/Council and any other relevant law in force. iv. ‘Commercial presence’ – in certain sub sectors there are conditions of Economic needs test e.g. wholesale trade services, Franchising etc. v. The commitments in Financial Services are given to the nationals and financial institutions of the Members whose laws and policies do not bar the provision of similar commitments to the Pakistani nationals and financial institutions.

42. Pakistan’s offer SALIENT FEATURES OF PROPOSED REVISED OFFER: • As per the ECC mandate all 11 sectors and 86 sub-sectors covered. • Commercial presence' - subject to incorporation in Pakistan with maximum foreign equity participation of70% is inscribed against a particular sector or sub sector. (ECC mandate)

43. SALIENT FEATURES OF PROPOSED REVISED OFFER (contd) iii. No limitations on Market Access or National treatment in Cross border supply (mode I) and Consumption abroad (mode II) except for Financial Sector and its sub sectors. • Movement of natural persons - Unbound, except for measures concerning the entry or temporary stay of natural persons falling in specified categories. E.g.Intracorporate transferees, Business visitors, Independent Professionals etc...

44. SALIENT FEATURES OF PROPOSED REVISED OFFER (contd) v. No commitments contingent upon reciprocity by other countries. (ECC plus) vi. No requirement of Economic Need Test for granting Market Access or National Treatment. (ECC plus) vii.Presence of natural persons’ – in certain sub sectors there are conditions that qualifications for foreign service suppliers will be set by the concerned Pakistani Association/Council and any other relevant law in force. (Initial offer)

45. Pakistan’s View in Service Sector Pakistan believes that the liberalization in Services sector is in our own interest, as it will enhance the efficiency of local service suppliers through competition and introduction of new techniques apart from improving the quality of manufactured goods, since the service are also inputs for manufacturing. Pakistan is presently consulting various Domestic stakeholders before a final offer is made.

46. Trade Related Intellectual Property RightTRIPS Presentation by: Mujeeb Ahmed Khan Head WTO Cell Trade Development Authority of Pakistan

47. TRIPS • TRIPs included in the single undertaking of the UR • It establishes minimum standards for all types of IPRs (but utility models and breeders’ rights) • It is based on and supplements, with additional obligations, the Paris, Berne, Rome and Washington Conventions • It extends to IPRs the principles governing international trade: MFN, NT • It contains provisions relating to enforcement of IPRs, amendment and reservation

48. TRIPS (cont…2) TRIPS requires member states to provide strong protection for intellectual property rights. For example, under TRIPS: • Copyright terms must extend to 50 years after the death of the author, although films and photographs are only required to have fixed 50 and to be at least 25 year terms, respectively.(Art. 7(2),(4)). • Copyright must be granted automatically, and not based upon any "formality", such as registrations or systems of renewal.

49. TRIPS (cont…3) • Computer programs must be regarded as "literary works" under copyright law and receive the same terms of protection. • National exceptions to copyright (such as "fair use" in the United States) are constrained by the Berne three-step test . • Patents must be granted in all "fields of technology," although exceptions for certain public interests are allowed (Art. 27.2 and 27.3 [1]) and must be enforceable for at least 20 years (Art 33).

50. TRIPS (cont…4) • Exceptions to the exclusive rights must be limited, provided that a normal exploitation of the work (Art. 13) and normal exploitation of the patent (Art 30) is not in conflict. • No unreasonably prejudice to the legitimate interests of the right holders of computer programs and patents is allowed. • Legitimate interests of third parties have to be taken into account by patent rights (Art 30). • In each state, intellectual property laws may not offer any benefits to local citizens which are not available to citizens of other TRIPs signatories by the principles of national treatment (with certain limited exceptions, Art. 3 and 5 [2]). TRIPS also has a most favored nation clause.