Business Guide to the World Trading System

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28 Jan 2000
9789213618172 (PDF)

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As world trade becomes more and more global, the rules of the world trading system are being continuously refined. For a better participation in the world trading system, it has become necessary to understand clearly the business implications of these rules. The Business Guide to the World Trading System starts with an overview of the World Trade Organization’s (WTO) legal system and the benefits that the business community can derive from it. The Guide explains the role of the WTO as a forum for negotiations, presents the rules applicable to trade in goods; reviews the main features of the rules of the General Agreement on Trade in Services; explains the rules applicable to government procurement and State trading; describes the provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights; and looks at the new subject areas on which analytical work is being carried out to determine whether negotiations within the WTO on the development of new rules to cover their trade-related aspects would be desirable.

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  • Preface

    As world trade becomes more and more global, the rules of the world trading system are being continuously refined. The international business community is increasingly experiencing the impact of this process. For a better participation in the world trading system, it is thus necessary, now more than ever before, to understand clearly the business implications of these rules. This is especially so in developing and transition economies.

  • Acknowledgements

    Vinod Rege, former Director of GATT and current Adviser on WTO issues to the Commonwealth Secretariat, wrote and prepared this Guide.

  • Note
  • Introduction

    The World Trade Organization (WTO) came into existence on 1 January 1995 as a result of the Uruguay Round of Trade Negotiations. It is responsible for overseeing the multilateral trading system which has gradually evolved over the last 50 years. WTO also provides a forum for continuing negotiations to liberalize the trade in goods and services through the removal of barriers and to develop rules in new trade-related subject areas. The WTO Agreements have a common dispute settlement mechanism through which Members enforce their rights and settle the differences that arise between them in the course of implementation.

  • Overview

    This overview introduces the reader to the rules of the WTO system, briefly explains the progress achieved in trade liberalization and refers to the new trade-related subject areas on which WTO is currently carrying out analytical work in order to determine whether it would be desirable to develop WTO rules in those areas. The overview is divided into five sections.

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  • Expand / Collapse Hide / Show all Abstracts International rules governing trade in goods (GATT 1994 and its associate aggrements)

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    • Four main rules of GATT

      The entire edifice of GATT’s open and liberal multilateral trading system is built on four basic and simple rules.

    • Valuation of goods for customs purposes

      When customs duties are levied on an ad valorem basis (e.g. 10 % of the value of imported goods), the actual incidence of duty depends on how Customs determines dutiable value. The Agreement on Customs Valuation requires Customs to determine the value on the basis of the price paid or payable by the importer in the transaction that is being valued. As a result of a Decision adopted in the Uruguay Round, Customs can reject transaction values when it has reasons to doubt the truth or accuracy of the value declared by importers or of the documents submitted by them. In order to protect the interests of importers in such situations, Customs is required to provide them with an opportunity to justify/ their price. Where Customs is not satisfied with the justifications given, it is obliged tv give to these importers in writing its reasons for not accepting the transaction value they have declared.

    • Preshipment inspection

      Since about the second half of the twentieth century importers have used the services of independent inspection companies to certify the quality and quantity of products they want to import. These inspections, which are conducted in most cases prior to shipment and in the country of exportation, assure the importer that the goods conform to the technical specifications and the quality standards laid down in the contract and that the quantities exported are accurate. The services of such inspection companies are utilized not only by private business firms, but also by State-owned enterprises and government departments. In fact, the regulations in many countries require goods procured by government departments to be inspected and certified for quality and quantity by independent and competent inspection companies.

    • Mandatory and voluntary product standards, and sanitary and phytosanitary regulations

      Countries often require imported products to conform to the mandatory standards they have adopted for the protection of the health and safety of their people or for the preservation of their environment.

    • Import licensing procedures

      National import licensing procedures can adversely affect the flow of imports, particularly if these procedures are not transparent or if they unnecessarily delay the issue of licences. The Agreement on Import Licensing Procedures divides licences into two categories: automatic and non-automatic. Automatic licences should be issued within a maximum period of 10 working days after the receipt of applications. Non-automatic licences, which are generally used to administer quantitative restrictions, must be granted within a maximum period of 30 days from receipt of application where licences are issued on a first-come first-served basis and 60 days if all applications are considered simultaneously.

    • Rules applicable to exports

      GATT rules permit an export product to be relieved of all indirect taxes borne by it in the exporting country. The rules further allow countries to levy duties on exports if these are necessary to control exports or to achieve any other policy objective. As with imports, the rules prohibit export restrictions except in a few specified situations.

    • Rules governing subsidies on industrial products

      The GATT rules on subsidies stipulated in Article XVI have been clarified and elaborated by the Agreement on Subsidies and Countervailing Measures (SCM) and the Agreement on Agriculture. Broadly speaking, the provisions of the Agreement on SCM apply to industrial products; those of the Agreement on Agriculture cover agricultural products.

    • Safeguard measures to restrict imports in emergency situations

      The Agreement on Safeguards authorizes importing countries to restrict imports for temporary periods if, after investigations carried out by competent authorities, it is established that imports are taking place in such increased quantities (either absolute or in relation to domestic production) as to cause serious injury to the domestic industry that produces like or directly competitive products. It further provides that such measures, which could take the form of an increase in tariffs over bound rates or the imposition of quantitative restrictions, should normally be applied on an MFN basis to imports from all sources.

    • Safeguard actions for economic development purposes: Special flexibility available to developing countries

      GATT rules provide special flexibility to developing countries to take safeguard measures to restrict imports, for temporary periods, in order to promote the development of new or infant industries. However, GATT lays down strict conditions for the invocation of these rules. Furthermore, safeguard measures can ordinarily be introduced only with WTO approval.

    • Response to unfair trade practices: Rules on the use of countervailing and anti-dumping duties

      The GATT rules deal with two types of “unfair” trade practices which distort conditions of competition. First, the competition may be unfair if the exported goods benefit from subsidies. Second, the conditions of competition may be distorted if the exported goods are dumped in foreign markets.

    • Rules of origin

      Rules of origin are used by governments to determine the country in which imported goods should be treated as having been produced. The revolutionary changes that are taking place in communications and transport now enable manufacturing companies to obtain inputs for the production of final products in far-off countries where trained personnel are available and costs are lower. This trend towards sourcing inputs from different countries is further facilitated by steps being taken to remove tariffs and other barriers to trade.

    • Trade-related investment measures

      Governments often impose conditions on foreign investors to encourage investment in accordance with certain national priorities. Conditions that can affect trade are known as trade-related investment measures or TRIMs.

    • Agreement on textiles and clothing

      The basic aim of the Agreement on Textiles and Clothing (ATC) is to secure the removal of restrictions currently applied by some developed countries to imports of textiles and clothing. To this end the Agreement sets out procedures for integrating the trade in textiles and clothing fully into the GATT system by requiring countries to remove the restrictions in four stages over a period of 10 years ending on 1 January 2005. The flexibility available under the integration procedures has, however, enabled countries to remove restrictions in the first two stages only on a limited number of products. The first major impact of the integration programme is therefore expected when the third-stage integration takes place (on 1 January 2002); the bulk of the restrictions will be withdrawn in the last phase, when the transition period ends and the Agreement expires.

    • Agreement on agriculture

      The reform programme adopted under the Agreement on Agriculture negotiated in the Uruguay Round tries to bring under the discipline of GATT the trade in agriculture – a sector in which its rules were not always fully applied by all member countries.

    • Results of market access negotiations

      The preceding chapters describe the main features of the strengthened legal system that is now applicable under GATT 1994 to trade in goods. One of the important aims of this system is to assist countries to promote their economic development through increased trade by removing tariffs and other barriers to trade in negotiations among Members.

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  • Expand / Collapse Hide / Show all Abstracts International rules governing trade in services

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    • General agreement on trade in services

      Trade in services is growing and currently accounts for over 20% of all international trade. The General Agreement on Trade in Services (GATS),which was negotiated in the Uruguay Round, applies the basic rules for trade in goods to trade in services. However, the rules have been suitably modified to take into account the differences between goods and services and the four modes in which international trade in services takes place.

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  • Expand / Collapse Hide / Show all Abstracts Government procurement and state trading

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    • Government procurement

      The rules of GATT specifically exempt purchases made by governments and the agencies controlled by them from the national treatment rule. Government agencies importing their requirements are also not obliged to extend MFN treatment to external suppliers of such products but only to give them fair and equitable treatment. These provisions permit purchasing agencies to buy their requirements, if they so wish, from domestic producers, even though products of comparable quality are offered for sale by foreign suppliers at lower prices.

    • State trading

      The GATT rules impose two main obligations on member countries in regard to State trading enterprises. First, they require these enterprises to conduct their business on the basis of commercial considerations. Second, in order to ensure transparency in the products imported and exported by such enterprises, they require member countries to notify the WTO Secretariat on their activities.

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  • Expand / Collapse Hide / Show all Abstracts Trade-related aspects of intellectual property rights

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    • Agreement on trade-related aspects of intellectual property rights

      The development of international trade can be adversely affected if the standards adopted by countries to protect intellectual property rights (IPRs) vary widely from country to country. Furthermore, the lax or ineffective enforcement of such rights can encourage trade in counterfeit and pirated goods, thereby damaging the legitimate commercial interests of manufacturers who hold or have acquired those rights. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), negotiated in the Uruguay Round, therefore lays down minimum standards for the protection of intellectual property rights as well as the procedures and remedies for their enforcement. It establishes a mechanism for consultations and surveillance at the international level to ensure compliance with these standards by member countries at the national level.

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  • Expand / Collapse Hide / Show all Abstracts Subjects added to the WTO work programme for study and analysis

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    • Trade and environment

      During the last two decades, the interlinkage between trade and environment has become an increasingly important issue in international trade relations. Growing awareness of the need to protect the environment and to promote the sustainable development of available resources has led to a rise in environmental policy measures. Such measures are normally implemented by governments through regulatory or economic instruments. In some cases, both types of instruments are used.

    • Trade and investment

      The General Agreement on Tariffs and Trade (GATT) came into existence some 50 years ago. It is important to recall that it was negotiated on the basis of the trade provisions of the Havana Charter, which contained chapters on foreign direct investment and restrictive business practices. These, however, were not included in GATT. The Havana Charter did not become operational because of the failure of the United States to ratify it.

    • Trade and competition policy

      The subject of the interaction between trade and competition policy was added to the work programme of WTO as a result of decisions taken at the 1996 Singapore Ministerial Conference. The Working Group which has been established is expected to study and analyse “issues raised by Members relating the interaction between trade and competition policy, including anti-competitive practices,” and to “identify areas that merit further consideration in the WTO framework.” In carrying out analytical work, the Group is expected to take into account the provisions of the Agreement on Trade-Related Investment Measures, provisions in WTO law on investment and competition policy, and discussions in the Working Group on Trade and Investment.

    • Transparency in government procurement practices
    • Trade facilitation

      Trade facilitation is one of the new subjects added to the WTO work programme at the 1996 Singapore Ministerial Conference. The Ministerial Declaration of that Conference directed the Council for Trade in Goods to undertake exploratory and analytical work in this area. The relevant paragraph in the Declaration reads as follows:

    • Electronic commerce

      There is no universally accepted definition of the term ‘electronic commerce’. However, it is generally used to cover the “distribution, marketing, sale or delivery of goods and services by electronic means”. The rapid growth in electronic commerce during the last decade has been due to the increasing use of the Internet for commercial purposes.

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