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International Trade and Finance

Notes The rules on non-discrimination—MFN and national treatment—are designed to secure fair conditions
of trade. The WTO has also set rules on dumping and subsidies which adversely affect fair trade. The
issues are complex, and the rules try to establish what is fair or unfair, and how governments can
respond, in particular by charging additional import duties calculated to compensate for damage
caused by unfair trade. Many of the other WTO agreements aim to support fair competition, such as
in agriculture, intellectual property, and services. The agreement on government procurement (a
‘plurilateral’ agreement because it is signed by only a few WTO members) extends competition rules
to purchases by thousands of government entities in many countries.
24.3 WTO Agreements : An Overview

WTO agreements are often referred to as ‘trade rules’ and hence the WTO is described as a ‘rule-
based’ system. These rules are actually agreements negotiated by the member countries’ governments.
The WTO agreements fall in a broad structure of six main parts as under :
• An umbrella agreement (the agreement establishing WTO)
• Agreements for each of the three broad areas of trade covered by WTO
— Goods
— Services
— Intellectual property
• Dispute settlement
• Reviews of governments’ trade policies
The WTO agreements cover two basic areas—goods and services in addition to intellectual property.
The agreements for goods under GATT deal with the following sector-specific issues, such as
agriculture, health regulations for farm products (SPS), textiles and clothing, product standards,
investment measures, anti-dumping measures, customs valuation methods, pre-shipment inspection,
rules of origin, import licensing, subsidies and counter-measures, and safeguards. The specific issues
covered by GATS include movement of natural persons, air transport, financial services, shipping,
and telecommunications. Moreover, these agreements are dynamic rather than static in nature as
they are negotiated from time to time. The new agreements can be added to the package. For instance,
the Doha Development Agenda launched in the Doha Ministerial Conference is currently under
negotiations.
General Agreement on Tariffs and Trade

The General Agreement on Tariffs and Trade (GATT) has significantly widened the access to
international markets, besides providing legal and institutional framework. Under the WTO regime,
countries can break the commitment (i.e., raise the tariff above the bound rate), but only with difficulty.
To do so, a member country is required to negotiate with the countries most concerned and that
could result in compensation for trading partners’ loss of trade.
Opening Up of the Industrial Sector
Market access schedules under GATT include commitments of member countries to reduce the tariffs
and not to increase the tariffs above the listed rates, that means the rates are bound. For developed
countries, bound rates are the rates generally charged. Most developing countries have bound the
rates somewhat higher than actual rates charged, so the bound rates can serve as a ceiling.
Reduction in tariffs : Individual member countries have listed their commitments to reduce the tariff
rates in schedules annexed to the Marrakesh Protocol to the General Agreement on Tariffs and Trade,
1994, which is a legally binding agreement. Under these commitments, developed countries were to
cut the average tariff levels on industrial products by 40 per cent in five equal instalments from 1
January 1995. However, the percentage of tariff reduction on some products of export interest to
developing countries, such as textiles and clothing and leather and leather products is much lower
than the average, as they are considered sensitive. A number of developing countries and economies-
in-transition agreed to reduce their tariffs by nearly two-thirds of the percentage achieved by developed

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