Page 269 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

Unit 24 : Multilateralism and WTO

• Countries can provide developing countries special access to their markets. Notes
• A country can raise barriers against products that are considered to be traded unfairly from
specific countries.
• In services, countries are allowed, in limited circumstances, to discriminate.
But the agreements only permit these exceptions under strict conditions. In general, MFN means that
every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods
or services from all its trading partners—whether rich or poor, weak or strong.
National treatment : The WTO agreements stipulate that imported and locally-produced goods should
be treated equally—at least after the foreign goods have entered the market. The same should apply
to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. This
principle of ‘national treatment’ (giving others the same treatment as one’s own nationals) is also
found in all the three main WTO agreements, i.e., Article 3 of GATT, Article 17 of GATS, and Article
3 of TRIPS. However, the principle is handled slightly differently in each of these agreements. National
treatment only applies once a product, service, or an item of intellectual property has entered the
market. Therefore, charging customs duty on an import is not a violation of national treatment even
if locally-produced products are not charged an equivalent tax.
Gradual move towards freer markets through negotiations

Lowering trade barriers is one of the most obvious means of encouraging international trade. Such
barrier includes customs duties (or tariffs) and measures, such as import bans or quotas that restrict
quantities selectively. Since GATT’s creation in 1947-48, there have been eight rounds of trade
negotiations. At first these focused on lowering tariffs (customs duties) on imported goods. As a
result of the negotiations, by the mid-1990s industrial countries’ tariff rates on industrial goods had
fallen steadily to less than 4 per cent. But by the 1980s, the negotiations had expanded to cover non-
tariff barriers on goods, and to new areas, such as services and intellectual property. The WTO
agreements allow countries to introduce changes gradually through ‘progressive liberalization’.
Developing countries are usually given longer period to fulfil their obligations.
Increased predictability of international business environment
Sometimes, promising not to raise a trade barrier can be as important as lowering one, because the
promise gives businesses a clearer view of their future market opportunities. With stability and
predictability, investment is encouraged, jobs are created, and consumers can fully enjoy the benefits
of competition—choice and lower prices. The multilateral trading system is an attempt by governments
to make the business environment stable and predictable.
One of the achievements of the Uruguay Round of multilateral trade talks was to increase the amount of
trade under binding commitments. In the WTO, when countries agree to open their markets for goods or
services, they ‘bind’ their commitments. For goods, these bindings amount to ceiling on customs tariff
rates. A country can change its bindings, but only after negotiating with its trading partners, which could
mean compensating them for loss of trade. In agriculture, 100 per cent of products now have bound
tariffs. The result of this is a substantially higher degree of market security for traders and investors.
The trading system under the WTO attempts to improve predictability and stability in other ways as
well. One way is to discourage the use of quotas and other measures used to set limits on quantities of
imports as administering quotas can lead to more red-tape and accusations of unfair play. Another is to
make countries’ trade rules as clear and public (transparent) as possible. Many WTO agreements require
governments to disclose their policies and practices publicly within the country or by notifying the
WTO. The regular surveillance of national trade policies through the Trade Policy Review Mechanism
provides a further means of encouraging transparency both domestically and at the multilateral level.
Promoting fair competition

The WTO is sometimes described as a ‘free trade’ institution, but that is not entirely accurate. The
system does allow tariffs and, in limited circumstances, other forms of protection. More accurately, it
is a system of rules dedicated to open, fair, and undistorted competition.

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