Page 154 - DMGT545_INTERNATIONAL_BUSINESS

Unit 8: World Trade Organization

Principles of the trading system notes

Some of them are discussed as under:
1. Trade without discrimination:

(i) Most-favoured-nation (MFN): Treating other people equally under the WTO
agreements, countries cannot normally discriminate between their trading partners.
Grant someone a special favour (such as a lower customs duty rate for one of their
products) and you have to do the same for all other WTO members.
This principle is known as most-favoured-nation (MFN) treatment. It is so important
that it is the first article of the General Agreement on Tariffs and Trade (GATT),
which governs trade in goods. MFN is also a priority in the 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 agreement the
principle is handled slightly differently. Together, those three agreements cover all
three main areas of trade handled by the WTO.
Some exceptions are allowed. For example, countries can set up a free trade agreement
that applies only to goods traded within the group — discriminating against goods
from outside. Or they can give developing countries special access to their markets.
Or a country can raise barriers against products that are considered to be traded
unfairly from specific countries. And 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.
(ii) National treatment – Treating foreigners and locals equally: 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 (Article 3 of GATT, Article 17 of GATS and
Article 3 of TRIPS), although once again the principle is handled slightly differently
in each of these.
National treatment only applies once a product, service or 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.
2. Freer trade: gradually, through negotiation: Lowering trade barriers is one of the most
obvious means of encouraging trade. The barriers concerned include customs duties (or
tariffs) and measures such as import bans or quotas that restrict quantities selectively.
From time-to-time other issues such as red tape and exchange rate policies have also been
discussed.
Since GATT’s creation in 1947–48 there have been eight rounds of trade negotiations. A
ninth round, under the Doha Development Agenda, is now underway. 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%.
But by the 1980s, the negotiations had expanded to cover non-tariff barriers on goods, and
to the new areas such as services and intellectual property.

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