Understanding Multilateral

trading

Understanding Multilateral

tradingWorld trade organization (wto)World trade organization (wto)

Justin WilliamsJustin Williams

Global PartnershipsGlobal PartnershipsThe WTO consists of fundamental principles that are the foundation of the multilateral trading system

principles include:

trade without discrimination

Freer trade: through negotiation

predictability: through binding and transparency

promoting fair competition

encouraging development and economic reform

Trade without discriminationTrade without discrimination1.Most-Favored-Nation Treatment

under WTO agreements countries cannot discriminate between trading partners

if someone is granted a special favor (lowering custom duty rates) then this must be done for all other WTO members

Exceptions:

1. countries can set up free trade agreement that only applies to goods traded within group (trading partners) and discriminates against goods from outside

2. countries can grant developing countries access to their markets

3. countries can raise barriers against products that are considered to be traded unfairly from specific countries.

Trade without discriminationTrade without discrimination

2. Treating Foreigners and locals Equally

imported (foreign) and locally-produced goods should be treated equally [at least after foreign goods have entered market]

should also be treated equally: foreign and domestic services, local trademarks, copyrights and patents

this is the principal of “national treatment”: treating foreign goods as you would treat your own nation’s

“National treatment” is only applied once a product has entered the market

thus, a country is allowed to charge customs duty on an import (not in the market) and not charge customs on a locally-produced product.

Freer Trade: Gradually Through negotiation

Freer Trade: Gradually Through negotiationEncouraging Trade

lowering trade barriers; customs duties, quotas that restrict specific quantities and import bans (most obvious)

changing exchange rate policies (have been discussed)

General Agreement on Tariffs and Trade (GATT) 1947

(1947-1994) 8 rounds of trade negotiations which discussed: tariffs, tariffs & anti-dumping measures, tariffs & non-tariffs measures “framework” agreements, tariffs & non-tariff rule

result: by mid-1990s industrial countries’ tariffs rates on industrial goods fell to less than 4%

Doha Development Agenda: currently hosts 9th round of trade negotiation

Opening markets (beneficial but requires adjustment) thus WTO allows gradual changes through “progressive liberalization”

Predictability: Binding & TransparencyPredictability: Binding & Transparencycertain promises from countries promote future opportunities

ex/ promise to not raise trade barrier gives businesses a clearer view of their future opportunities therefore with stability and predictability, investment is encouraged (therefore jobs are created and consumers can enjoy benefits of competition)

When countries agree to open their markets for goods/services they “bind” their agreement (through set tariffs, tax import rates, etc)

a country can change it’s binding agreements by negotiating with trading partners

bounding of products promotes a higher degree of market security for traders and investors & therefore predicability (why predictability is important)

improve predictability: transparency

making countries’ trade rules as clear and public as possible to not cause confusion

Promoting Fair CompetitionPromoting Fair Competition

the rules of the WTO try to establish what is fair and unfair and how governments can respond caused by unfair trade

Most-Favored-Nation (MFN)

National Treatment

Partly a “free trade” institution because:

allows tariffs and other limited forms of protection

BUT NOT ENTIRELY FREE TRADE because of aforementioned rules

encouraging development and economic reform

encouraging development and economic reform

WTO system contributes to development

WTO understands that over 3/4s of members are developing countries, they sometimes need special assistance and flexibility in time to implement WTO agreements

Uruguay Round (negotiation talks) helped to increase bindings in developed countries

and the end of Round; developing countries were more prepared to take on most obligations required of developed countries

their are still concerns about obligation which are currently being discussed in Doha Development Agenda

http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm

http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact4_e.htm#rounds