Page 155 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes Opening markets can be beneficial, but it also requires adjustment. The WTO agreements
allow countries to introduce changes gradually, through “progressive liberalization”.
Developing countries are usually given longer to fulfill their obligations.
3. Predictability: through binding and transparency: 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 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.
In the WTO, when countries agree to open their markets for goods or services, they “bind”
their commitments. For goods, these bindings amount to ceilings on customs tariff rates.
Sometimes countries tax imports at rates that are lower than the bound rates. Frequently
this is the case in developing countries. In developed countries the rates actually charged
and the bound rates tend to be the same.
A country can change its bindings, but only after negotiating with its trading partners,
which could mean compensating them for loss of trade. One of the achievements of the
Uruguay Round of multilateral trade talks was to increase the amount of trade under
binding commitments. In agriculture, 100% of products now have bound tariffs. The result
of all this a substantially higher degree of market security for traders and investors.
The system tries 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 — 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.
4. 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.
The rules on non-discrimination — MFN and national treatment — are designed to secure
fair conditions of trade. So too are those on dumping (exporting at below cost to gain
market share) and subsidies. 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: in agriculture,
intellectual property, services, e.g., 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.
And so on.
5. Encouraging development and economic reform: The WTO system contributes to
development. On the other hand, developing countries need flexibility in the time they take
to implement the system’s agreements. And the agreements themselves inherit the earlier
provisions of GATT that allow for special assistance and trade concessions for developing
countries.
Over three quarters of WTO members are developing countries and countries in transition to
market economies. During the seven and a half years of the Uruguay Round, over 60 of these
countries implemented trade liberalization programmes autonomously. At the same time,

150 lovely Professional university