All nations can participate in trade

All nations can participate in trade, WTO Members or not –

However, just to make things clear: WTO membership is for Governments only – the private sector, non-governmental organisations and other lobbying groups do not participate in WTO activities.

Alliances

WTO members can form alliances with other members (i.e. ASEAN, EU) with the same trade interests.

For example, the Association of South East Asian Nations (ASEAN) has 9 WTO members including Brunei Darussalam, Cambodia, Indonesia, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam, whereas the remaining member – Laos PDR- is applying to join the WTO (November 2019). The European Union has 28 members.

Summary

As you can see from the WTO home page, there is a broad range of information freely available to all, including reports, books, training programs, and e-learning, trade topics, trade monitoring reports etc.

Image source: WTO home web page.

Atlantic Charter: Churchill meets with Roosevelt in 1941

The global rules that underpin today’s multilateral economic system were a direct reaction to the Second World War and desire of two very important people for it to never repeat.

In 1941, as the Germans had just invaded Russia, Winston Churchill and Franklin Roosevelt signed “the Atlantic Charter”. The Charter contained only 8 short clauses, some of which reflected the wish to end the war and the hope for world peace and security, but two clauses of which were economic clauses.

The Atlantic Charter inspired several other international agreements and events that followed the end of the Second World War including the formation of the North Atlantic Treaty Organisation (NATO), and the GATT. In 1942, adherents to the Atlantic Charter signed the Declaration by United Nations which was the basis for the modern United Nations (UN). Image source: Atlantic Charter.

Geneva (1947)

Most of the GATT’s rounds focused originally on goods and reducing tariffs. It started with a first round in Geneva in 1947.

A General Agreement was signed by 23 countries. It was the first attempt to write a rule book for commerce. This first rule books includes tariff cuts on one-fifth (1/5) of world trade representing around 45,000 tariff cuts and affecting $10 billion of trade.

Annecy (1949)

The second round took place in Annecy, France in 1949.

13 GATT Member states or countries agree to a further 5,000 tariff concessions.

Torquay (1950-51)

This was followed by the Torquay round in the UK where 38 GATT Members agree to an additional 8,700 reduction of tariffs, equivalent to an additional 25% reduction compared to 1848.

Geneva (1956)

Back in Geneva, 26 Member countries agree to a value of around $2.5 billion worth of tariff reductions

The Dillon round (Geneva 1960-1961)

This Geneva round is referred to as the “Dillon Round” and focused on customs duties.

26 countries met in Geneva, focussed on harmonising concessions within the new European Economic Community. During this round about 4,400 tariff concessions covering $4.9 billion of trade were agreed on.

The Kennedy round (Geneva 1964-1967)

The next round of negotiations, called the “Kennedy round” saw a further reduction of tariffs, down to 50%.

This round was also held in Geneva, with participation of 62 Members countries representing 75% of total world trade. Further tariff reductions were agreed on and valued at an estimated $40 billion. This round resulted in 35% of average cuts on industrial goods.

Tokyo (1973-1979)

This round focused on a series of agreements on non-tariff barriers. The Tokyo round was the first major attempt to tackle trade barriers that do not take the form of tariffs and to improve the system.

102 Member countries were present and discussed both tariffs and non-tariffs issues. Further tariff reductions and bindings (commitments not to increase current tariffs) were agreed on during this round.

Uruguay round (Beginning of WTO)

Most importantly, the Uruguay Round Agreement on Agriculture (or URAA), signed in April 1994, focussed on outstanding trade issues including agriculture, textiles, services and intellectual property.

123 signatory countries committed themselves to reductions in protectionist measures, export subsidies, and domestic support for their own agricultural products.

The Uruguay round not only created new rules for dealing with trade but it also led to the development of new procedures for dispute settlement system and trade policy review mechanism. The value of trade impacted is estimated at 3.7 trillion. This final act concluding the Uruguay round and officially establishing the WTO regime was signed in 1994 at Marrakech, Morocco and it is hence known as Marrakech Agreement. It entered into force in the 1st of January 1995.

Summary

The outcome of the 1986-94 Uruguay Round of negotiations led to a major revision of the original General Agreement on Tariffs and Trade and the formation of the WTO.

In the next set of slides, we are going to go through the next round of trade negotiations, called the Doha/Qatar round.

For more information each round of trade negotiations, please refer to the WTO GATT bilateral negotiating material by Round

First WTO Ministerial Conference (Singapore 1996)

Conference (Singapore 1996) The negotiations on trade liberalisation kept on going to include agricultural products which became a part of the WTO’s agenda through the Doha round between 2001 and 2004.

A fundamental objective of the Doha round is to improve the trading prospects of developing countries.

The first ministerial conference (MC) took place in Singapore in 1996.

Doha round (2001- 2017)

The work program of the Doha round is also known as the “Doha development Agenda”.

The aim is to further liberalise trade, but also to focus on developing countries, particularly Least Developed Countries (LDCs), and their integration into the WTO multilateral system.

Talks so far have focused on:

1. Reforming agricultural subsidies;
2. Ensuring that new liberalisation in the global economy respects the need for sustainable economic growth in developing countries; and
3. Improving developing countries’ access to global markets for their exports.

Negotiations resulted in major updates to the WTO rule-book stating the terms of trade for all members.

Bali (2013)

The second MC took place in Bali in 2013.

This meeting saw the adoption of the Agreement on Trade Facilitation (TFA) , which aims to reduce border delays by facilitating and fast-tracking processes – the overall outcome being a significant decrease in trade costs.

For more information see WTO Bali Package and November 2014 decisions

Trade Facilitation Agreement (2017)

In 2017, the WTO amended its Intellectual Property Agreement as the Trade Facilitation Agreement (or TFA for short) entered into force.

Under the TFA, Member countries must comply with international best practice including:

• publishing information on customs procedures
• advance rulings
• appeal mechanisms
• limiting fees and charges
• establishing procedures for clearing goods

Specific examples of practical measures that will strengthen global trade and economic growth include:

• allowing exporters to submit import documentation before physical goods arrive,
• clearing goods before final duties and charges are calculated,
• obtaining precise and binding information on the tariff classification of their goods before arrival,
• mandating the quick release of perishable goods, which will reduce waiting times for clearance of agricultural exports in foreign ports, and
• requirements to publish relevant procedures and forms for importing goods online to streamline access to customs procedures and new export markets.

Source: Australian Department of Foreign Affairs and Trade.

Summary

In summary, the WTO oversees a whole range of Agreements that deal with agriculture, textiles and clothing, banking, telecommunications, government purchases, industrial standards, product safety and many more.

What are tariffs?

Tariffs are a tax on imported goods that eventually adds to the cost borne by consumers of imported goods. Tariffs are paid to the customs authority of the country imposing the tariff and importing the goods. Tariffs are simply a tax that a governing authority imposes on goods or services entering or leaving the country. Taxes owed on imports, the so called tariffs, are paid by domestic consumers, and not imposed directly on the foreign country’s exports.

By doing so, the importing country is trying to protect its domestic economy by raising the cost of imports and shifting the trade balance in favor of their domestic goods and services.

Of course if the tariffs are high and because the cost gets shifted to the consumer, the imported commodity then becomes more expensive than its domestic equivalent. So to ensure that trade can still occur, one has to find a way to make imported goods competitive and still attractive cost-wise: one way to achieve this is to lower tariffs on imports.

Tariffs can therefore be an impediment- or barrier- to trade because they increase the cost of imported commodities. Lowering or removing them promotes global trade.

Another way for a country or nation to protect its domestic markets from imports is to impose quotas.

What are quotas?

A quota is nothing more than a defined physical limit of quantity for a given product. Quotas limit the quantity or volume of imports to a given country.

In other words – a quota specifies the maximum amount that can be imported during a given time period for specific goods or services.

Quotas act as another trade barrier by imposing strict restrictions on volumes of imported products.

What are subsidies?

A subsidy is often used as an antonym to a tax, i.e. a government transfer of money to an entity in the private sector.

It can also be defined as an assistance granted by government to the production, manufacture or export of specific goods, and taking the form either of direct payments, such as grants or loans, or of measures having equivalent effect, such as guarantees, operational or support services or facilities, and fiscal incentives (Glossary of trade and market protection related terms, World Bank).

Subsidies lower the price of goods in the producing country and make them competitive against foreign goods therefore reducing foreign competition and impacting on trade.

Summary

So both tariffs and quotas are potential trade barriers and if both are lowered and fixed, or removed entirely, then global trading systems can improve.

This is what the GATT and later on the WTO have focused on through their negotiations with Members. It is about finding better ways to trade, by lowering trade barriers to facilitate the movement of goods and services around the world.

The overall outcome is an increased prosperity of all trading partners by increasing trade activities and promoting economic growth, noting however, there is still periodic debate on labour standards and environmental implications arising from free trade. It is more complicated than this, and you might have heard about other sanctions such as bans, exchange rate policies and others, but this is the realm of economists! So we will stop here.