CHAPTER 6

Multilateral Regulation of Trade

INTRODUCTION

International trade regulation is a recent phenomenon which has its roots in the establishment of multilateral trade organizations such as the GATT and the WTO. The basis of multilateral trade is the principles of non-discrimination, reciprocity, market access, and fair competition, which have been embodied in both the GATT and WTO agreements.

The WTO is a multilateral trade organization that came into existence on 1 January 1995, and is the successor to the GATT, which was created in 1947 and continued to operate for almost five decades as a de facto international organization.

GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)

The General Agreement on Tariffs and Trade (GATT) came into existence in 1947 as an international organization for the facilitation of trade liberalization. There were several multilateral institutions established to help in the reconstruction of the world economy after World War II. The International Trade Organization (ITO) was initially established for liberalization of trade but since its charter could not be ratified, it was replaced by the GATT.

Objectives and Principles

The GATT was a treaty, not an organization. Its main objective was helping in the growth of international trade through the reduction of tariff barriers, quantitative restrictions, and subsidies on trade through a series of agreements. Its main objectives, listed in the preamble are:

• Raising the standard of living
• Ensuring full employment, and a large and steadily growing volume of real income and effective demand
• Developing the full use of the resources of the world
• Expansion of production and international trade

For almost half a century, the GATT’s basic legal principles remained much as they were in 1948. There were additions in the form of a section on development added in the 1960s and plurilateral agreements (agreements involving fewer members with a specific interest in an issue) with voluntary membership in the 1970s, while efforts to reduce tariffs further continued. Much of this was achieved through a series of multilateral negotiations known as trade rounds.

The history of the GATT can be divided into the following three phases:

1. The first phase from 1947 until the Torquay Round, largely concerned with which commodities would be covered by the agreement and freezing existing tariff levels.
2. The second phase, encompassing three rounds, from 1959 to 1979, focused on reducing tariffs.
3. The third phase, consisting only of the Uruguay Round from 1986 to 1994, extended the agreement fully to new areas such as intellectual property, services, capital, and agriculture. The WTO was born out of the negotiations of the Uruguay Round.

The achievements of GATT are listed as under:

• The early GATT trade rounds only concentrated on reducing tariffs.
• It was the Kennedy Round in the mid-sixties, which introduced an Anti-dumping Agreement and a section on development.
• The Tokyo Round during the seventies was the first major attempt to tackle non-tariff trade barriers, and to improve the system.
• The eighth round, that is, the Uruguay Round of 1986–94, was the last and the most extensive round which led to the establishment of the WTO and a new set of agreements.

Uruguay Round

The last round of multilateral trade negotiation under the GATT known as the Uruguay Round started in 1986, but remained largely inconclusive on account of the complexities of the issues involved in it. In December 1990, the then Director General Arthur Dunkel presented a draft solution called the Dunkel Draft, which was later replaced by an enlarged agreement. This agreement was finally approved on 15 December 1993.

The Uruguay Round included the following areas for the first time:

• Trade in services leading to the General Agreement on Trade in Services (GATS)
• Trade-related aspects of intellectual property leading to the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPs)
• Trade-related investment measures leading to the Agreement on Trade-related Investment Measures (TRIMs)

GATT: An Evaluation

Although the GATT was established as a provisional organization with a limited field of action, it has made a significant contribution to the promotion and the liberalization of world trade.

• Tariff reductions implemented during its lifetime helped to increase world trade to high rates of about 8 per cent growth during the 1950s and 1960s.
• Growth in world trade was far more than growth in world production as a result of trade liberalization during the GATT era. This was the result of increased trade between member countries which was made possible after the introduction of GATT.
• There was a rush of new members during the Uruguay Round, which clearly showed that the multilateral trading system was recognized as an anchor for development and an instrument of economic and trade reform.

However, there were a number of problems which came up with the passage of time and although the Tokyo Round in the 1970s attempted to tackle some of these, it had limited success. Some of these problems are listed below:

• The GATT’s success in reducing tariffs to a very low level, combined with a series of economic recessions in the 1970s and early 1980s, drove governments to look for other forms of protection for domestic sectors, which were threatened by increased foreign competition.
• High rates of unemployment and the shutting down of factories led governments in Western Europe and North America to seek bilateral market-sharing arrangements with competitors, and to embark on a subsidies race to maintain their hold on agricultural trade. Both of these changes reduced the credibility and effectiveness of GATT.

Besides the deteriorating trade policy environment, by the early 1980s, the GATT was clearly no longer as relevant to the realities of world trade as it had been in the 1940s. There were various reasons for this change:

• World trade had become far more complex and important in the last 40 years as a result of globalization of the world economy.
• Trade in services (not covered by the GATT rules) became one of major interests to more and more countries, and international investment expanded even more.
• Expansion in merchandize trade matched the expansion of services trade.
• The GATT met with limited success in the realm of agriculture, as loopholes in the multilateral system, were heavily exploited, and efforts at liberalizing agricultural trade were largely ineffective.
• In the textiles and clothing sector, an exception to the GATT’s normal disciplines was negotiated in the 1960s and in early 1970s, leading to the MFA.
• Even the GATT’s institutional structure and its dispute settlement system were a cause for concern as it was felt that the developed nations dominated the scene and developing countries’ interests were either sidelined or completely ignored.

These and other factors convinced GATT members of the need for a renewed effort to reinforce and extend the multilateral system. This effort resulted in the Uruguay Round, the Marrakesh Declaration and the creation of the WTO.

WORLD TRADE ORGANIZATION (WTO)

The WTO is a multilateral trade organization aimed at international trade liberalization. It came into existence on 1 January 1995 as the successor to the GATT. The WTO functions on the basis of a set of agreements, which have been negotiated and signed by a large majority of the world’s trading nations, and ratified in their parliaments. These agreements are in the form of contracts which guarantee important trade rights to its member nations and are the legal ground-rules for international commerce. The WTO presently has 164 members representing 98 per cent of world trade.¹

 

The WTO’s basic role is to ensure that nations follow the rules of trade at a global level. It has got this mandate based on negotiations concluded under GATT especially under the Uruguay Round in 1986–94. The WTO is governed by a Ministerial Conference, which meets every two years; a General Council, which implements the conference’s policy decisions and is responsible for day-to-day administration; and a director-general, who is appointed by the Ministerial Conference. The WTO’s headquarters are in Geneva, Switzerland.

WTO AGREEMENTS

The WTO agreements cover trade in goods, services and intellectual property and specify the basic principles of liberalization and the exceptions to the rule. This includes individual countries’ commitments to lower customs tariffs and other trade barriers, and to open markets for services. They also include a dispute settlement procedure between member countries and prescribe special treatment for developing countries. They require governments to make their trade policies transparent by notifying the WTO about laws in force and measures adopted, through the submission of regular reports to the secretariat on countries’ trade policies.

 

The WTO agreements fall into a simple structure with six main parts:

1. An overall umbrella agreement establishing the WTO
2. GATT for goods
3. GATS for services
4. TRIPS for intellectual property
5. Dispute settlement
6. Reviews of governments’ trade policies

General Agreement on Tariffs and Trade (GATT)

The agreement for goods under GATT covers sector-specific issues, such as agriculture, health regulations for farm products, textiles and clothing, product standards, and issues such as import licensing, rules of origin, subsidies, counter measures and safeguards.

 

Agriculture

The first multilateral agreement on agriculture was introduced in the Uruguay Round, with the basic objective of introducing reform in agriculture to make it more market-oriented. Under the terms of this agreement, developed countries agreed to cut tariffs by an average of 36 per cent in equal steps over the period 1995–2000, while developing countries agreed to make tariff cuts of 24 per cent over a 10 year period. However, the least developed countries were exempted from making these tariff cuts.

Tariffs on all agricultural products are now bound and have been substantially reduced. Almost all import restrictions, which were in the form of quotas, have been converted into tariffs. Market access commitments on agriculture have also eliminated previous import bans on certain products.

The agreement also contains provisions for cutting down domestic support in the form of subsidies or price support. The quantified measure of this is known as aggregate measurement of support (AMS). There are three distinct categories of subsidies in the agricultural sector: amber box, blue box and green box, based on the nature of protection provided by them.

Standards and Safety Measures

The Agreement on Sanitary and Phytosanitary Measures (SPS) lays down basic rules on food, safety, and plant health standards. It allows governments to set their own rules based on science and health, which is considered necessary for the protection of human, animal and plant life or health, as long as they do not discriminate between countries or act as disguised protectionism.

The Agreement on Technical Barriers to Trade (TBT) complements the attempts to make sure that regulations, standards, testing, and certification procedures do not create unnecessary obstacles to trade.

Trade in Textiles

World trade in textiles was traditionally governed by the Multi Fibre Arrangement (MFA)—a framework for bilateral agreements or unilateral actions that established quotas limiting imports into member countries. Since the MFA went against the basic principles of the GATT, it was replaced by WTO’s Agreement on Textiles and Clothing (ATC) from 1995. The agreement was supervised by a Textiles Monitoring Body (TMB), which monitors actions under the agreement to ensure that they are consistent. The ATC came to an end on 1 January 2005 and opened up immense opportunities and challenges for developing countries.

General Agreement on Trade in Services (GATS)

GATS is the first set of rules governing international trade in services. It came into existence due to the growing importance of the service sector in the world economy and covers all internationally traded services, such as banking, telecommunications, tourism and other professional services. It covers these services in the following modes:

 

• Mode 1 covers services supplied from one country to another, such as international telephone calls. It is known as cross-border supply.
• Mode 2 covers consumers or firms making use of a service in another country, such as tourism. It is known as consumption abroad.
• Mode 3 refers to services termed commercial presence, such as a foreign company setting up subsidiaries or branches abroad.
• Mode 4 is known as presence of natural persons and includes individuals travelling to foreign countries to supply services, such as fashion models or consultants.

Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS)

TRIPS lays down the minimum standards for the protection of intellectual property rights as well as the procedures and remedies for their enforcement in a multilateral trading system. The TRIPS agreement is an attempt to narrow the gap in the way intellectual property is protected in varying degrees across the world and to bring it under common international rules. It also establishes a mechanism for consultation and surveillance at an international level to ensure compliance with these standards by member countries at the national level. Rapid developments in technology have led to increasing trade in films, music, and computer software with increasing invention, innovation research, and design in all of these. The provisions under TRIPS are based on important existing conventions such as the Protection of Industrial Property and the Berne Convention. Its provisions are applicable to intellectual property rights related to patents, copyrights, trademarks, industrial designs, and layout designs of integrated circuits. According to this agreement, developed countries were given one year to ensure that their law and practices were in conformity with TRIPS regulations, whereas developing and transition economies were given five years. The least developed countries were given 11 years to make the grade, but this was subsequently extended to 2016 for pharmaceutical patents.

 

Agreement on Trade-related Investment Measures (TRIMS)

TRIMS aims to regulate international investment as it recognizes that governments often impose conditions on foreign investors to encourage investment according to national priorities. The provisions of TRIMS, therefore, stipulate that no member shall apply any measures in violation of the national treatment principles of the GATT and discriminate against foreigners or foreign products. It also prohibits investment measures that place a restriction on quantities and measures requiring a certain per centage of local procurement (local content requirement), and discourages measures which limit imports or set targets for exports (trade balancing requirements).

 

ORGANIZATIONAL STRUCTURE OF WTO

The WTO has the following important organs in its organizational structure:

• The Ministerial Conference is the highest decision-making body of the WTO responsible for deciding its strategic direction and for making all final decisions on agreements under its purview. It is a body of all international trade ministers from its member countries and it meets at least once every two years. Although voting can take place, decisions are generally taken by consensus, a process that can at times be difficult, particularly in a body composed of 164 members.² The 11th Ministerial Conference was held at Buenos Aires in December 2017.
• The General Council is a body of senior representatives of its member countries and is responsible for the day-to-day business and management of the WTO. It is based at the WTO headquarters in Geneva and is the key decision-making arm of the WTO for most issues. Several of the bodies described below report directly to the General Council. In different situations and under different rules, it meets as the Trade Policy Review Body and the Dispute Settlement Body.
• The Trade Policy Review Body is a key function of the WTO is surveillance of national trade policies of its member countries. The WTO performs this function in accordance with its trade policy review mechanism (TPRM) which was established under the Uruguay Round. This requires a periodic review of all WTO members; the frequency of each country’s review is varying according to its share of world trade. These reviews are intended to make sure that member states are implementing their obligations according to the mandate of the WTO.
• The Dispute Settlement Body consists of all WTO members and is constituted to ensure that all disputes under the WTO are resolved and that members follow the decisions on these disputes. A dispute arises when a member government believes another member government is violating an agreement or a commitment that it has made in the WTO. Disputes are heard and ruled on by dispute resolution panels chosen individually for each case, and the permanent Appellate Body that was established in 1994. Dispute resolution is mandatory and binding on all members. A final decision of the Appellate Body can only be reversed by a full consensus of the Dispute Settlement Body (DSB).
• The Councils on Trade in Goods and Trade in Services and the Council for the Agreement on Trade-related Aspects of Intellectual Property Rights operate under the mandate of the General Council. These councils consist of all members and are responsible for developing and supervising a mechanism to oversee the details of the general and specific agreements on trade in goods, trade in services and trade-related aspects of Intellectual Property Rights. The Goods Council has 10 committees dealing with specific subjects (such as agriculture, market access, subsidies, anti-dumping measures and so on).
• The Secretariat and Director General of the WTO are based in Geneva, in the old home of GATT. The Secretariat has no legal decision-making power. It looks after the administrative functioning of the WTO and provides vital services and also has an advisory function. The Secretariat is headed by the Director General, who is elected by the members.
• The Committee on Trade and Development and the Committee on Trade and Environment are two of the several committees continued or established under the Marrakech Agreement in 1994. They have specific mandates to focus on these relationships, which are especially relevant to how the WTO deals with sustainable development issues. The Committee on Trade and Development was established in 1965. The forerunner to the Committee on Trade and Environment (the Group on Environmental Measures and International Trade) was established in 1971, but did not meet until 1992. Both Committees are now active as discussion grounds, but do not actually negotiate trade rules.

PRINCIPLES OF WTO

The WTO is governed by certain basic guiding principles which are contained in the form of complex agreements covering a wide range of activities. The basic areas they deal with are agriculture, textiles and clothing, banking, telecommunications, government purchases, industrial standards and product safety, food sanitation regulations, and intellectual property. These principles are as follows.

 

Most-Favoured-Nation (MFN)

According to the WTO agreements, countries cannot normally discriminate between their trading partners. If a country gives a special favour, advantage, or privilege to one country (such as a lower customs duty rate for one of their products), it has to be similarly granted to all other WTO members. This is known as the most-favoured-nation (MFN) status, which is granted by WTO members to each other.

The MFN treatment is a basic pillar of multilateral trade negotiations and was also the first article of the General Agreement on Tariffs and Trade (GATT), which governs trade in goods. MFN is also a priority in the General Agreement on Trade in Services (GATS) and the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS). Although in each agreement, the principle is handled slightly differently, together, these three agreements cover all three main areas of trade handled by the WTO.

There are some exceptions to the MFN rule.

• Countries can set up a free trade agreement that applies only to goods traded within the group but discriminates against goods from outside.
• They can also give developing countries special access to their markets or raise barriers against products that are considered to be traded unfairly from specific countries.
• Limited discrimination is allowed in the area of services too.

However, the agreements only permit these exceptions under strict conditions. In general, MFN means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners—whether rich or poor, weak or strong.

National Treatment

This principle implies that imported and locally-produced goods should be treated equally once they are in the domestic market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. This principle of national treatment (giving others the same treatment as one’s own nationals) is also found in all the three main WTO agreements, although once again the principle is handled slightly differently in each of these.

National treatment only applies once a product, service or item of intellectual property has entered the domestic market. Therefore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax.

There are some exceptions to the above stated WTO principles:

• The WTO allows members to establish bilateral or regional customs unions, or free trade areas (FTAs). Members in such areas enjoy more preferential treatment than those outside the group.
• The WTO also allows members to lower tariffs to developing countries without lowering them for the developed ones. The US, for example, offers such treatment to developing countries through the Generalized System of Preferences (GSP). Due to this system, US companies that are more vulnerable to import competition from developing countries, face greater pressure on cost reduction. If a developing country is not a WTO member, it cannot enjoy such preferences.
• The WTO also allows escape clauses, which are special allowances permitted by the WTO to protect infant industries or to safeguard the economic interests of newly admitted developing countries. These countries may modify or withdraw concessions on customs duties if this is required for the establishment of a new industry that will improve standards of living. They may also restrict imports to safeguard their balance of payments equilibrium, or obtain the necessary exchange for the purchase of goods for the implementation of development plans. Their governments are also allowed to provide assistance to these industries if it helps to safeguard their economies.

FUNCTIONS OF WTO

The WTO was set up to achieve the following functions:

• Elimination of discrimination: The WTO follows the MFN and national treatment principles for the elimination of discrimination among its member nations. This is done to ensure the overall economic development of all member nations based on the principles of free trade.

   

  The main functions of the WTO are elimination of discrimination, fighting against protection and trade barriers and dispute resolution among its members.

• Combating protection and trade barriers: The WTO is committed to the removal of all types of protection against free trade whether it is in the form of import duties or quotas, for whatever reasons they are implemented. The WTO’s trade policy review body regularly monitors the trade policies of its members in order to increase the degree of market access to members’ markets.
• Resolution of disputes: The WTO functions as a forum for the resolution of disputes of its members through the establishment of panels for this specific purpose. The judicial reach of the WTO is, however, restricted to its members, and non-members cannot benefit from this facility.
• Providing a forum for emerging issues: The WTO is a forum for dealing with emerging issues in the world trading system, such as intellectual property, environmental issues, regional agreements, as well as special sectors such as agriculture, telecommunications, financial services and maritime services. The forum serves to develop new rules through these discussions, such as TRIPS for the governance of issues related to patents, copyrights, trade secrets, and related matters.

WTO: AN EVALUATION

The WTO has been fairly successful in its efforts to promote free trade in the global economy although it has met with quite a few setbacks and there still remains a large unfinished agenda.

Developing Country Issues

Developing countries criticize the WTO as that they fail to benefit from the trade liberalization and protection of intellectual property under the WTO framework, since they have neither a good supply base necessary for trade expansion nor strong intellectual property rights (IPRs) for financial gains.

Developed countries often take advantage of escape routes and loopholes in the WTO agreements. For instance, the ATC left the choice of products to importing countries. Developed countries chose only those products for liberalization which were not under import restraints without actually liberalizing their textile imports.

Dispute Resolution Mechanism

The WTO’s dispute settlement mechanism suffers is criticized for suffering from a complete lack of transparency and is extremely opaque in revealing how settlements were reached. Whether settling disputes or negotiating new trade relations, it is never clear which nations are involved in the decision-making processes.

In this context, the WTO is seen as a clique of the developed nations forcing agreements that allow them to exploit less developed nations. This clique uses the WTO to open up developing nations as markets to sell, while protecting their own markets against weaker nations’ products. This view has its valid points, as the most economically powerful nations seem to set the WTO agenda, and were the first to pass anti-dumping acts to protect favoured domestic industries, while also opposing similar actions by less powerful nations.

A substantial amount of negotiations take place in small groups where developing nations are not present, but they are expected to ratify these when they are discussed in large groups.

Subsidies in Agriculture

Agriculture continues to be an important source of livelihood for large parts of the developing and the less developed world. Its members have, therefore, been insisting on special and differential treatment in several aspects of WTO dealings, including agriculture, in the Doha Round. It is in this context that countries like India have been insisting that the Doha agricultural outcome must include the removal of distorting subsidies and protection to ensure a level playing field. It also wants appropriate provisions to safeguard food and livelihood security to meet rural development needs.

FUTURE CHALLENGES FOR WTO

Some of the challenges being faced by the WTO and will continue in the future are:

Farm subsidies: The WTO has had a deadlock over farm subsidies as a result of a clash of interests between the US and the EU. While the US is in favour of the elimination of subsidies on a priority basis, the EU with its politically powerful farm lobby and long history of farm subsidies was unwilling to take this step.

Labor practices: The US wanted the WTO to allow governments to impose tariffs on goods imported from countries which did not follow what the US considered fair labor practices. This led to violent protests from the developing world which considered this a legal route to restrict imports from poor, low-cost developing countries.

Anti-dumping actions: As per the WTO rules, member nations are allowed to impose anti-dumping duties on foreign goods being sold cheaper in foreign markets than the home market. The provision is hugely exploited on account of its rather vague definition and interpretation. The members reporting the highest number of new initiations during January–June 2010 were India with 17 new initiations, followed by the EU with eight new initiations, Argentina with seven new initiations, and Brazil and Israel with five each.

Agriculture: The high level of tariffs in agriculture is another cause for concern at the WTO. The biggest defaulters of this have been the developed nations in order to defend their agricultural sectors from developing nations’ low-cost competition. Tariff rates on agricultural commodities have been much higher than corresponding rates on manufactured products or services. In addition to tariffs, agricultural producers also benefit from substantial subsidies. Both these facts result in significant distortions in the trading system in the form of increased prices and reduced volumes for sale.

Intellectual property: The TRIPS regulation of the WTO makes it an obligation for members to grant and enforce patents for 20 years and copyrights for 50 years with grace periods for the poor nations. This is based on the belief that innovation, which is the engine of economic growth, is driven by a protected patent regime. An instance of this is the Indian pharmaceutical industry, which was known for producing generic versions of patented drugs through reverse engineering, earning itself the title of a ‘copycat’. With the ending of the grace period for the industry in 2005, there has been a flurry of activity, including alliances, as the industry has geared up to cope with the change. Similar issues plague other industries, such as software and music, which need strict enforcement of intellectual property rights.

Doha Development Agenda: The Fourth Ministerial Conference in Doha, Qatar, in November 2001, was the longest negotiating round since World War II. Following the fiasco at the Seattle Ministerial Conference, which ended inconclusively, the Doha Round mandated negotiation on a range of subjects. The entire package is called the Doha Development Agenda (DDA) and included cutting tariffs on industrial goods and services, phasing out subsidies on agricultural produce, reducing barriers on cross border investment, and limiting the use of anti-dumping laws.

Both the WTO and its predecessor, the GATT, have been considered the ‘club of rich nations’ by the developing world. Considered beneficial to world trade as a whole, the benefits of the WTO are largely dependent on the bargaining power of its members. Consequently, countries of the developing world are of the opinion that they are victims of unfair trade practices and policies adopted by rich nations. They have long been asking the affluent nations to honour commitments to open more markets or remove unfair treatment. There are also concurrent issues on environmental problems, human rights issues, and national supremacy compounding things even further.

WTO ACHIEVEMENTS

Trade Facilitation Agreement, was adopted at the ninth ministerial conference in Bali and came into force in February 2017. The Agreement aims to speed up the movement of goods across borders, and is thus, expected to reduce trade costs globally by an average of over 14 per cent. It is the first multilateral trade deal in the history of the WTO which has reached a conclusion.

The Aid for Trade initiative was launched in 2005 and is aimed at helping the least developed and developing countries, to build the trade capacity and infrastructure needed to benefit from the trade openness which the WTO mandates. Aid for Trade is a broad initiative which includes help in the areas of technical assistance, infrastructure, development of productive capacity and adjustment assistance—helping with the costs associated with tariff reductions, preference erosion, or declining terms of trade. It also includes targeted programmes, such as the Enhanced Integrated Framework, which provides technical and financial support to least-developed countries to help them use trade as a tool for economic growth and poverty reduction. The Aid for Trade initiative has so far disbursed funds worth over USD 342 billion in its 10 years of existence.

The Environmental Goods Agreement began in 2014 as plurilateral negotiations to promote trade in a number of key environmental products, such as wind turbines and solar panels. There are eighteen participants representing 46 WTO members engaged in the negotiations aimed at eliminating tariffs on a number of important environment-related products. These include products that can help achieve environmental and climate protection goals, such as generating clean and renewable energy, improving energy and resource efficiency, controlling air pollution, manageing waste, treating waste water, monitoring the quality of the environment, and combatting noise pollution. The EGA endorses the WTO stance on sustainable development and protection and preservation of the environment as its fundamental goals.

The TRIPS Agreement saw an important landmark amendment in 2017, aimed at improving the access of its less developed member countries to expensive and unaffordable medicines produced in other countries. This is the first ever amendment to a basic WTO agreement. The new protocol allows generic versions of patented medicines to be produced under compulsory licences for export to countries that cannot manufacture the medicines for themselves. This has a huge implication for the poorer developing nations who will now have access to these medicines helping to deal with diseases such as HIV/AIDS, tuberculosis or malaria, as well as other epidemics.

Trade and Sustainable Development Goals (SDGs)—The role of trade in promoting sustainable development has been an important topic at the WTO. It has been acknowledged that both governments and the private sector need to contribute so that trade benefits contribute to SDGs. Several WTO initiatives over the years have helped towards SDGs. These include the decision taken by WTO members in 2015 to abolish agricultural export subsidies which contributes to the key target of SDG 2 on ‘zero hunger’. In addition, by agreeing to act on harmful fisheries subsidies by 2019, members have also committed to meet an important target of SDG 14.

UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT (UNCTAD)

The United Nations Conference on Trade and Development (UNCTAD) was established in 1964 in response to the growing concerns about the place of developing countries in international trade. The UNCTAD is a knowledge-based institution, which promotes the development-friendly integration of developing countries into the world economy and whose work aims to help shape current policy debates and thinking on development, with a particular focus on ensuring that domestic policies and international action are mutually supportive in bringing about sustainable development.

The first United Nations Conference on Trade and Development was held in Geneva in 1964. Considering the magnitude of the problems at stake and the need to address them, the conference was institutionalized to meet every four years, with intergovernmental bodies meeting between sessions and a permanent secretariat providing the necessary substantive and logistical support. Simultaneously, the developing countries established the Group of 77 (G77) to voice their concerns. The present strength of the G77 is 131.

Functions of UNCTAD

The organization has three key functions:

1. It functions as a forum for intergovernmental deliberations, supported by discussions with experts and exchanges of experience, aimed at consensus building.
2. It undertakes research, policy analysis and data collection for the debates of government representatives and experts.
3. It provides technical assistance tailored to the specific requirements of developing countries, with special attention to the needs of the least developed countries and of economies in transition. When it is considered appropriate, the UNCTAD cooperates with other organizations and donor countries in the delivery of technical assistance.

In performing its functions, the secretariat works together with member governments and interacts with organizations of the United Nations (UN) system and regional commissions, as well as with governmental institutions, non-governmental organizations, the private sector including trade and industry associations, research institutes and universities worldwide.

UNCTAD: An Assessment

The UNCTAD has gone through three phases till date.

Phase 1: The 1960s and 1970s

In the early decades of the UNCTAD’s operation (the 1960s and the 1970s), the UNCTAD gained authoritative standing as an intergovernmental forum for North–South dialogue and negotiations on issues of interest to developing countries, including debates on the ‘new international economic order’, and for its analytical research and policy advice on development issues.

Some of the agreements initiated by the UNCTAD during this time include:

• The Generalized System of Preferences (GSP), whereby developed economies granted improved market access to exports from developing countries.
• A number of International Commodities Agreements, which aimed at stabilizing the prices of export products crucial for developing countries.
• The Convention on a Code of Conduct for Liner Conferences, which strengthened the ability of developing countries to maintain national merchant fleets.
• The adoption of a Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices; this work later evolved into what is today known as Trade and Competition Policies.
• The identification of the Group of Least Developed Countries (LDCs) in the 1970s, which drew attention to the particular needs of these poorest countries. The UNCTAD became the focal point within the UN system for tackling LDC-related economic development issues.

Phase 2: The 1980s

In the 1980s, the UNCTAD was faced with a changing economic and political environment.

There was a significant transformation in economic thinking. Development strategies became more market-oriented, focusing on trade liberalization and privatization of state enterprises. A number of developing countries were plunged into severe debt crises, generally as a consequence of their inward-looking policies. Despite structural adjustment programmes by the WB and the IMF, most developing countries were not able to recover quickly and often experienced negative growth and high rates of inflation. For this reason, the 1980s become known as the ‘lost decade’, particularly in Latin America. In the light of these developments, the UNCTAD multiplied its efforts in the following areas:

• It aimed at strengthening the analytical content of its intergovernmental debate, particularly regarding macroeconomic management and international financial and monetary issues.
• It also tried to broaden the scope of its activities to assist developing countries in their efforts to integrate into the world trading system. In this context, the technical assistance provided by it to developing countries was particularly important in the Uruguay Round of trade negotiations. UNCTAD played a key role in supporting the negotiations for the General Agreement on Trade in Services (GATS).
• The UNCTAD’s work on trade efficiency (customs facilitation, multimodal transport, etc.) made an important contribution to enabling developing economies to reap greater gains from trade.
• The UNCTAD assisted developing countries in the rescheduling of official debt in the Paris Club negotiations.
• The UNCTAD played a key role in promoting South–South cooperation. In 1989, the Agreement on the Global System of Trade Preferences (GSTP) among developing countries came into force. It provided for the granting of tariff as well as non-tariff preferences among its members. Till date, the Agreement has been ratified by 44 countries.
• The UNCTAD was instrumental in addressing the concerns of the poorest nations by organizing the first UN Conference on least developed countries in 1981. Since then, two other international conferences have been held at 10-year intervals.

Phase 3: From the 1990s Till the Present

This period was marked by the conclusion of the Uruguay Round of trade negotiations under the GATT, which resulted in the establishment of the WTO in 1995 and the strengthening of the legal framework governing international trade. Concurrently, there was a spectacular increase in international financial flows, which led to increasing financial instability and volatility. Foreign direct investment flows became a major component of globalization.

Against this background, the UNCTAD’s analysis gave early warning concerning the risks and the destructive impact of financial crises on development. Consequently, the UNCTAD emphasized the need for a more development-oriented ‘international financial architecture’.

CHAPTER SUMMARY

• The basis of multilateral trade are the principles of non-discrimination, reciprocity, full market access, and fair competition.
• Multilateral regulation of trade began with the GATT which aimed at reducing trade barriers, mainly tariff barriers, in its deliberations.
• The eighth GATT round known as the Uruguay Round was much broader in coverage and included aspects such as TRIMS, TRIPS and GATS as a part of its agenda.
• The WTO was the successor to the GATT and is also a multilateral trade organization.
• It is governed by certain basic guiding principles that are in the form of complex agreements covering a wide range of activities.
• These principles are the most-favoured-nation principle and the principle of national treatment.
• The UNCTAD is a knowledge-based institution, which promotes the development-friendly integration of developing countries into the world economy and whose work aims to help shape current policy debates and thinking on development.

KEY TERMS

• General Agreement on Tariffs and Trade (GATT)
• World Trade Organization (WTO)
• General Agreement on Trade in Services (GATS)
• TRIPS
• TRIMS
• United Nations Conference on Trade and Development (UNCTAD)

DISCUSSION QUESTIONS

1. Explain the factors which led to the creation of the GATT.
2. ‘The failure of the GATT led to the creation of the WTO, Do you agree? Give reasons.
3. Enumerate the principles which are the basis of multilateral trading under the WTO framework.
4. List the major functions of the WTO and how they are achieved.
5. Explain the need for the establishment of the UNCTAD as a multilateral trade negotiation body.

EXAMINATION QUESTIONS

1. Explain the role of the WTO as a regulator of world trade. (8)

   [B.Com (Hons.), 2012, 2008]

2. Discuss the organizational structure, basic principles and functions of the WTO. (15)

   [B.Com (Hons.), 2011]

3. Explain the role of WTO as a regulator of world trade. (15)

   [B.Com (Hons.), 2014]

4. Explain the role and performance of WTO. (8)

   [B.Com (Hons.), 2015, 2016]

5. Briefly explain the role of WTO as a regulator and promoter of world trade. (7)

   [B.Com (Hons.), 2018]