CUTS Institute for Regulation & Competition

1. CUTS Institute for Regulation & Competition Training Programme on Commercial and Economic Diplomacy 09-12January, 2008 Chokhi Dhani, Jaipur Session 4: Multilateral Trading System Institution and Actors A Presentation By B. K. Zutshi January 09, 2008

2. 2 The International (Multilateral) Trading System Institution and Actors • OUTLINE • Introduction : From GATT to the WTO • Marrakesh Agreement Establishing the World Trade Organization • Institution and Actors • What does the animal look like? • How is it structured to function? • What are these Functions? • What is the GATT/WTO Paradigm? • WTO as a Sui Generis Organization. • What are the basic principles and rules of the system? • Critique of the actual working of the System; • Relations with other Organizations; • Developing countries & the Multilateral Trading System • Regional Trade Agreements. B. K. Zutshi

3. 3 The International (Multilateral) Trading System Institution and Actors • INTRODUCTION : From GATT to the WTO • Eight Rounds of Multilateral Trade Negotiations, the Ninth (DOHA) Round Underway ; • The Genesis of the setting up of the WTO: • Increasing Importance of Services in National Economies and in International Trade; • Shifts in Comparative Advantage; • Explosive Growth in Information Technology; • Increasing Tradability of Services; • Increasing Importance of Intellectual Property Goods in Trade due to Technological Developments; • Fragmentation of the Multilateral Trading System. B. K. Zutshi

4. 4 The International (Multilateral) Trading System Institution and Actors • Marrakesh Agreement Establishing the World Trade Organization • Its Distinguishing Features from GATT • Unlike GATT, WTO an Institution. • Third Leg of the International Economic Order Conceived at Bretton Woods. • Much Larger Coverage by Inclusion of Services and TRIPS. • Single Undertaking- a Halt to the Fragmentation of the International (Multilateral)Trading System. • A common Dispute Settlement and Enforcement Mechanism - With Possibilities for Cross-retaliations, Subject to some Disciplines. • A Forum for Continuous Negotiations. • Trade Policy Review Mechanism (TPRM). B. K. Zutshi

5. 5 Marrakesh Agreement Contd. WTO STRUCTURE Ministerial Conference (Every two years) DISPUTE SETTLEMENT BODY GENERAL COUNCIL TRADE POLICY REVIEW BODY • COMMITTEES ON • Trade and Development • Balance of Payments • Budget • Trade and Environment COUNCIL FOR TRADE IN SERVICES COUNCIL FOR TRADE IN GOODS COUNCIL FOR TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS COMMITTEES ON VARIOUS AGREEMENTS IN GOODS SECTORAL COMMITTEES AND WORKING PARTIES ON DOMESTIC REGULATIONS AND GATS RULES All WTO Members my participate in all councils, committees, etc, except Appellate Body, Dispute Settlement Panels, Textiles Monitoring Body, and plurilateral committees. B. K. Zutshi

6. 6 Marrakesh Agreement Contd. GATT/WTO PARADIGM Elements of the Paradigm • A set of Rules for the Conduct of International Trade relations among Members, applicable across the board to all of them, with some exceptions, strictly defined. • Negotiated schedules of market access commitments of individual Members, exchanged on reciprocal basis. Some exceptions for developing countries. • A mechanism for dispute settlement and enforcement. B. K. Zutshi

7. 7 Marrakesh Agreement Contd. WTO - a Sui Generis Organization • It is : • wholly Member-driven and Member-administered • democratic in character, value of a Member’s vote is the same irrespective of Trade Share; • It has: • a clearly defined remit or competence which is confined to trade relations among its Members; • a credible dispute resolution system, the only one of its kind in any inter-governmental organization; • Decision making is by consensus, although voting is possible and provided for; • Within itself it combines the triple function of governance, i.e. executive, legislative and judicial. B. K. Zutshi

8. 8 Marrakesh Agreement: WTO - a Sui Generis Organization Contd. • WTO Secretariat : Role and Functions: • Headed by a Director General with, four Deputy Directors - General and Divisional Heads, who are mostly professionals; • The Secretariat has an important supporting role in the functioning of the system: • Preparing background papers at the request of members for decision-making purposes; • Keeping records of meetings; • Preparation of annual reports and research based studies. • The Director General has a facilitating role and specific authority for offering his/her good offices in mediation and conciliation in dispute settlement and in appointment of members of dispute settlement panels in case of disagreement between parties. • Training,Technical Assistance and Capacity Building Activities. • Manned by highly competent professionals. • No decision making authority on substantive issues. B. K. Zutshi

9. 9 Marrakesh Agreement Contd. Basic Principles and Rules of the System Simple and Elegant • Non-discrimination: MFN and National Treatment. • Prohibition on quantitative restrictions on imports and exports, (some exceptions). • Reciprocity - Political Economy of the Multilateral Trading System ( S & D for Developing Countries). • Market Access - Tariff and non-Tariff bindings. • Transparency • Publication of Laws & Regulations • Domestic Judicial & Review Systems • Notification obligations to WTO • TPRM B. K. Zutshi

10. 10 Marrakesh Agreement Contd. Basic Principles and Rules of the System (Contd.) • Trade Measures in Condition of : • Fair Competition:Safeguards; • Unfair Competition (Contingent Protection): • Anti-Dumping, • Subsidies and Countervail. • Dispute Settlement • Consultation • Adjudication • Retaliation B. K. Zutshi

11. 11 Critique of the actual working of the system • Is there any confusion about the purposes and boundaries of the WTO?* • Is the consensus mode of decision-making becoming a drag on the efficiency and effectiveness of the organization and adversely impacting its credibility?* • Is it feasible to adopt a “critical mass” approach to decision-making, leading to a “variable geometry” of rights and obligations among the members, thereby giving up on the “single undertaking” concept and reverting to the Tokyo round approach.?* • In what other ways can the functioning of the system be improved to make it development- and development-country friendly?* • How far are the actual working procedures and practices transparent and participatory in nature? * The Future of the Multilateral Trade Regime: Which Way Forward? The Report of the First Warwick Commission, University of Warwick, December 2007 B. K. Zutshi

12. 12 Critique of the actual working of the system...Contd • There are two kinds of criticism of the existing procedures and practices: • that small and/or least developed countries’ delegates are not even present, much less participate in meetings that involve important discussion and/or decisions. • Small group meetings or the so-called “green room” process is exclusive, or at least , not inclusive enough • The absence of some delegates in meetings could be on account of delegations • not being present in Geneva; • being small, and therefore, unable to cover WTO meetings adequately, and • not aware of, and much worse still, not invited to attend. B. K. Zutshi

13. 13 Critique of the actual working of the system (Contd.) • The first two have to be addressed by better manpower resource allocation and capacity building of delegations of such Members; • Also by ensuring that the daily load of meetings is kept within reasonable limits. • Complaints of lack of transparency are not new. • The challenge is how to make the negotiating processes both efficient and inclusive. • This is essentially a leadership issue. • Some examples from Uruguay Round of good and indifferent leadership B. K. Zutshi

14. 14 External Transparency and Participation by Civil Societies / NGOs Role of Civil Societies / NGOs • Article V:2 of the Marrakesh Agreement envisages: • “ appropriate arrangements [being made] for consultation and cooperation with Non-Governmental Organizations concerned with matters related to those of the WTO” • Under this Mandate Guidelines for Arrangements on Relations with NGOs have been laid down by the General Council. • Specific Activities undertaken are: • NGO dialogues and briefings at the WTO; • Participation of NGOs in technical seminars organized by the WTO Secretariat in Geneva; • NGO-focused website outreach. B. K. Zutshi B. K. Zutshi

15. 15 External Transparency and Participation by Civil Societies / NGOs Role of Civil Societies / NGOs Contd. • This is not considered enough by some NGOs; • They demand participation in the WTO processes; • Basically three issues are involved in such participation: • Availability of WTO documents; • Access to dispute settlement processes and right to file amicus briefs; and • Participation, through presence as observes, in the deliberations of various WTO bodies. • Proliferation and variety in NGOs ranging from anti-globalization fringe elements to serious research-based organizations. • Asymmetry in resources and influence between NGOs from the North and the South: Implications at the Multilateral level. B. K. Zutshi

16. 16 Relations with other Organizations • Article V:1 envisages • “ appropriate arrangements [being made] for effective cooperation with other intergovernmental organizations that have responsibilities related to those of the WTO”. • Policy Coherence and Coordination is a concern, which is sought to be addressed through cooperative arrangements with other intergovernmental organizations; • Such Cooperative arrangements have been worked out by the WTO with UNCTAD, The World Bank, The IMF, and other specialized agencies like WIPO, WHO, ITU etc. B. K. Zutshi

17. 17 Developing countries & the Multilateral Trading System • Developing countries efforts in reforming the legal framework of the MTS in pursuit of the twin objectives of • adequate freedom for themselves in employing commercial policy instruments to foster their industrial and economic development; and • enlargement of access in world markets for manufactured goods of export interest to them under the GATT, and, for both goods and services of export interest to them under the WTO B. K. Zutshi

18. 18 Developing countries & the Multilateral Trading System Contd… • In the GATT legal framework • Differential and More Favourable Treatment • GATT – Part IV Provisions • Non Reciprocity: the Enabling Clause* • non-discriminatory and non-reciprocal generalize system of preferences • negotiation of preferential bindings in GATT between the developed and developing countries; and • sub-regional, regional, inter regional and global preferences between the developing countries • Graduation * The full title of the Decision is ‘Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing countries’-- Decision by the Contracting Parties on 28th November 1997 B. K. Zutshi

19. 19 Developing countries & the Multilateral Trading System Contd… • In Marrakesh Agreement establishing the WTO • Provisions Concerning Developing Country Members in Agreements • Recognition of general interest • Fewer Obligations or Differing Rules • Longer time frame for implementation • Technical Assistance • Decision on Measures in favour of Least-Developed Countries B. K. Zutshi

20. 20 Regional Integration Agreements (RIA’s) • Exception to the principles of MFN. • Permissible, subject to conditions and disciplines with relaxation for developing countries under special and differential treatment ( S & D). • Provision for examination of RIA’s by Members. • Available both in goods and services trade. B. K. Zutshi B. K. Zutshi

21. 21 INTEGRATION MODELS Free Trade Area/Preferential Trade Area : Trade restrictions among member countries removed, but each country retains its tariff structure against outsiders. ASEAN/SADC/NAFTA Customs Union: Free Trade Area with common external trade policies including tariffs. SACU Common Market: A Customs Union that allows free movement of Capital and Labour COMESA Economic Union/Monetary Union A Customs Union with some degree of harmonization of national economic policies - the ultimate being adoption of a common currency EU • ASEAN - Association Of South East Asian Nations • SADC - South African Development Community • NAFTA - North America Free Trade Area • SACU - Southern African Customs Union • COMESA - Common Market For Eastern & Southern Africa • EU - European Union B. K. Zutshi

22. 22 Motivation for Regional Integration Agreements • Considerations of national security and foreign policy. • Subset of like-minded countries able to move much further, more quickly in liberalising trade flows than in the larger setting of multilateral trade negotiations. • A way to enhance market power, while taking advantage of the MFN exception. • Lock-in liberalisation or regulatory reform. • Guaranteed access to markets. • These are not mutually exclusive. • Regional Integration:Trade-creating or Trade-diverting? • Globalisation and Regional Integration: A Paradox? B. K. Zutshi