International Law - 2 | Legal Reasoning for CLAT PDF Download

World Trade Organisation

The World Trade Organization (WTO) is an international governmental organization comprising of sovereign states. Its primary aim is to liberalize and regulate international trade. It provides a framework for negotiation and formalization of trade agreements and solves disputes between the member states.
The WTO agreements are ratified in the Parliaments of the member nations lay down the legal ground rules for international commerce. It was established on 1st January, 1995 under the Marrakesh Agreement with the primary aim to liberalize and regulate international trade. WTO replaced General Agreement on Trade and Tariffis (GATT) which had been formed in 1947. At present it has 153 members. India became a member of the WTO in 1995.

What is GATT?

Unlike the WTO, the GATT was a treaty organization affiliated with the United Nations whose main purpose was to facilitate trading activities between different nations of the world. The organization mainly focused on freezing and reducing tariff levels on various commodities.
At the time of its creation in 1947, GATT was meant to be a part of an International Trade Organization (ITO). Since the ITO was ultimately did not come into existence, the GATT was left as an independent body. It remained in force till 1994 when it was superseded by WTO. The original GATT text is still in effect under the WTO framework, subject to the modifications of GATT 1994

How was the WTO created?

The multilateral trading system originally set up under the GATT is well over 50 years old. The system further evolved through a series of multilateral trade negotiations held under GATT Eights rounds of negotiation occurred under GATT out of which the first rounds mainly dealt with tariff reductions  and the  later negotiations focused on areas like anti dumping and non-tariff measures.  The last round known as the Uruguay Round (from 1986-94) led to the formation of WTO.
By the time the negotiations were nearing their completion, 123 countries were taking part in the process. It was the largest trade negotiation in history covering diverse areas such as trade in services and intellectual property and trade reforms in agriculture and textiles. All the original article of GATT were brought up for review.
The Uruguay round culminated with the drafting of the first draft of a final legal agreement on world trade.  This draft also known as the “Dunkel Draft” was compiled by the then GATT director-general, Arthur Dunkel in December 1991. The Dunkel Draft with minor changes became the foundation of the WTO.

Agreements under WTO

The agreement establishing the WTO regime signed during the April 1994 ministerial meeting at Marrakesh (hence known as Marrakesh Agreement), Morocco encompasses a number of other agreements as well.  The important agreements which form part of the WTO regime are:

• The Agreement Establishing the WTO
• Goods and investment — the Multilateral Agreements on Trade in Goods including the GATT 1994 and the Trade Related Investment Measures
• Services — the General Agreement on Trade in Services
• Intellectual property — the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
• Dispute settlement (DSU)
• Reviews of governments’ trade policies (TPRM)

What is WTO Ministerial conference?

The Ministerial Conference is the topmost decision making body of WTO, which generally meets after every two years and brings together all the member nations. The Ministerial Conference can take decisions on any matter under any of the multilateral trade agreements.
WTO Ministerial Conference of 1996 (December 9-13)-  This was the inaugural ministerial conference held in Singapore.  Disagreements emerged between different nations on a number of issues initiated by this conference and the issues came to be collectively referred to as “Singapore Issues”. The issues pertain to

• Transparency in government procurement
• Trade facilitation (customs issues),
• Trade and investment, and
• Trade and competition.

➤ Second Ministerial Conference 

• WTO Ministerial Conference of 1998 (May 18-20)- The Second Ministerial Conference of the World Trade Organization was held in Geneva, Switzerland.

➤ Third Ministerial Conference

• WTO Ministerial Conference of 1999(November 30- December 3)- The Third Ministerial Conference of the World Trade Organization was held in Seattle, Washington, USA. It was intended to launch a new round of trade negotiations known as “Millennial Round”.  In this conference, the USA and the European Union attempted to strike a mutual deal on agriculture which resulted in major disagreements with the developing countries. The conference ended in failure with massive demonstrations by the protestors and their controversial management by the authorities.

➤ Fourth Ministerial Conference

• WTO Ministerial Conference of 2001 ( November 9-13)- The negotiations which had collapsed at Seattle were reconvened at Doha, Qatar. The Doha Development Round was launched at the conference. At this conference, the member nations approved the joining of China which became the 143rd member of WTO.

➤ Fifth ministerial conference

• WTO Ministerial Conference of 2003 (September 10-14)- The Fifth Ministerial Conference was held in Cancun, Mexico. It was targeted to forge the agreement on the Doha round. The G 20 developing countries ( a group of 22 southern nations) led by China, India and Brazil resisted demands from the North for agreements on the “Singapore issues” and called for an end to agricultural subsidies within the EU and the US. The talks broke down without progress.

➤ Sixth Ministerial Conference

• WTO Ministerial Conference of 2005 (December 13-18)- The Sixth Ministerial Conference was held in Hong Kong. It was very important for the progress of Doha Development Agenda and its successful completion in 2006. In this meeting, countries agreed to phase out all their agricultural export subsidies by the end of 2013, and terminate any cotton export subsidies by the end of 2006. Further concessions to developing countries included an agreement to introduce duty free, tariff free access for goods from the Least Developed Countries. Other major issues were left for further negotiation to be completed by the end of 2010.

➤ Seventh Ministerial Conference

• WTO Ministerial Conference of 2009 (November 30- December 3)- The Seventh Session of the WTO Ministerial Conference took place in Geneva, Switzerland. The general theme for discussion was “The WTO, the Multilateral Trading System and the Current Global Economic Environment.

What is India’s stand in the Doha Development round?

The Doha Development Agenda, launched at the fourth ministerial conference in Doha, Qatar in November 2001, aimed to make globalization more inclusive and help the world’s poor, particularly by reducing barriers to trade and subsidies in farming. The initial agenda comprised both further trade liberalization and new rule-making and. It also provided for substantial assistance by developing counties.  The negotiations were highly contentious and an agreement has not yet been reached. In 2007, negotiations within the Doha broke down at the Potsdam Conference.
ON July 21, 2008 negotiations started again at  WTO’s headquarters in Geneva but stalled after nine days of negotiations over the refusal to compromise over the special safeguard mechanism, a measure designed to protect poor farmers by allowing countries to impose a special tariff on certain agricultural goods in the event of an import surge or price fall.  This came one of the main bones of contention between India and US which resulted in the breakdown of the negotiations.
There was also the issue of agricultural subsidies. Developing countries like India wanted a reduction in trade distorting agricultural subsidies given the farmers in US and U.K. Further, while Brazil has emphasized reductions in trade-distorting domestic subsidies, especially by the United States, while India has insisted on a large number of special products that would not be exposed to wider market opening Moreover, developing countries led by India claim  they have had problems with the implementation of the agreements reached in the earlier Uruguay Round because of limited capacity or lack of technical assistance.
They also claim that they have not realized certain benefits that they expected from the Round, such as increased access for their textiles and apparel in developed-country markets. They seek a clarification of language relating to their interests in existing agreements. Although a number of these implementation issues were resolved, outstanding implementation issues are found in the area of market access, investment measures, safeguards, rules of origin, and subsidies and countervailing measures, among others.

What is a tariff barrier?

A tariff barrier is the barrier to trade in the form of a tax levied on imported or exported goods. Tariffs are usually associated with protectionism, the economic policy of restraining trade between nations. For political reasons, tariffs are usually imposed on imported goods, although they may also be imposed on exported goods. For instance, a protective tariff is intended to artificially inflate prices of imports and protect domestic industries from foreign competition especially from competitors whose host nations allow them to operate under conditions that are illegal in the protected nation, or who subsidize their exports. Tariff barriers have been significantly reduced in the face of WYO rules which require countries to cut down on their tariffs of imported goods.

What are non-tariff barriers?

Non-tariff barriers to trade (NTB’s) are trade barriers that restrict imports but are not in the usual form of a tariff. Some common examples of NTB’s are anti-dumping measures and countervailing duties, which, although they are called “non-tariff” barriers, have the effect of tariffs once they are enacted.
Their use has risen sharply after the WTO rules led to a very significant reduction in the use of tariff barriers. Some non-tariff trade barriers are explicitly permitted only in very limited circumstances, when they are deemed necessary to protect health, safety, or sanitation, or to protect depletable natural resources.

• Import bans
• General or product-specific quotas
• Rules of Origin
• Quality conditions imposed by the importing country on the exporting countries
• Sanitary and phyto-sanitary conditions
• Packaging conditions
• Labeling conditions
• Product standards
• Complex regulatory environment

What are Quantitative Restrictions to trade?

Quantitative restrictions are limitations on the quantity or value of a product that may be permitted to enter a country. They are probably the most familiar of the nontariff barriers and include quotas, embargoes, restrictive licensing, and other means of limiting imports. The Uruguay Round Agreement on Agriculture requires the conversion of quantitative restrictions to bound tariffs and tariff rate quotas.  Thus, these can be considered as trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, trade between countries.

What is the concept of bound tariff?

Bound tariff refers to the maximum rate of tariff allowed by (WTO) to any member state for imports from another member state.  The bound tariff rate is the the most-favored-nation tariff rate resulting from negotiations under the General Agreement on Tariffs and Trade (GATT) and incorporated as an integral component of a country’s schedule of concessions or commitments to other WTO members.
If a GATT contracting party raises a tariff to a higher level than its bound rate, the country or countries adversely affected have the right under GATT to retaliate against an equivalent value of the offending country’s exports or to receive compensation, usually in the form of reduced tariffs on other products they export to the offending country.

➤ What is an ad valorem tariff?

• An advalorem tariff is a duty or other charges levied on an item on the basis of its value and not on the basis of its quantity, size, weight, or other factor. It is a set percentage of the value of the good that is being imported. Sometimes these are problematic, as when the international price of a good falls, so does the tariff, and domestic industries become more vulnerable to competition. Conversely, when the price of a good rises on the international market so does the tariff, but a country is often less interested in protection when the price is high.

➤ What is the concept of balance of payments problems?

• Balance of payments (BOP) sheet is an accounting record of all monetary transactions between a country and the rest of the world.   These transactions include payments for the country’s exports and imports of goods, services, and financial capital, as well as financial transfers  The  economic problem caused by payments for imports being greater than receipts for exports.

➤ What is the mechanism of WTO Dispute Settlement and Appellate Tribunal?

• Dispute settlement mechanism of the WTO is the central pillar of the multilateral trading system, and the WTO’s unique contribution to the stability of the global economy. Without a means of settling disputes, the rules-based system would be less effective because the rules could not be enforced. The WTO’s procedure underscores the rule of law, and it makes the trading system more secure and predictable.
• The system is based on clearly-defined rules, with timetables for completing a case. First rulings are made by a panel and endorsed (or rejected) by the WTO’s full membership. Appeals based on points of law are possible. Priority is given to settlement of disputes, through consultations if possible. 
• Settling disputes is the responsibility of the Dispute Settlement Body (the General Council in another guise), which consists of all WTO members. The Dispute Settlement Body has the sole authority to establish “panels” of experts to consider the case, and to accept or reject the panels’ findings or the results of an appeal. It monitors the implementation of the rulings and recommendations, and has the power to authorize retaliation when a country does not comply with a ruling.
• Either side can appeal a panel’s ruling. Sometimes both sides do so. Appeals have to be based on points of law such as legal interpretation. They cannot reexamine existing evidence or examine new issues. The appeal can uphold, modify or reverse the panel’s legal findings and conclusions. Normally appeals should not last more than 60 days, with an absolute maximum of 90 days.
• Each appeal is heard by three members of a permanent seven-member Appellate Body set up by the Dispute Settlement Body and broadly representing the range of WTO membership. Members of the Appellate Body have four-year terms. They have to be individuals with recognized standing in the field of law and international trade, not affiliated with any government.
• The Dispute Settlement Body has to accept or reject the appeals report within 30 days. The rejection is only possible by consensus.