The World Trading System: Trade Liberalization between the Multilateral System and the Regional Trade Agreements (prepared for CDS. 05, Jaipur July, 2008) Ahmed F. Ghoneim Cairo University address:

What is meant by Trade Liberalization? Trade liberalization is not any more confined only to reduction of tariffs, but has now been extended to dealing with domestic rules and regulations, standards, services, intellectual property rights, labor and environmental issues.

The World Trading System: 1) World Trade Organization (GATT, GATS, TRIPS) 2) Regional Trade Agreements 3) Other systems

The World Trading System Other Systems RTAsWTO

World Trade Organization l Bretton Wood’s Institutions in 1947: (World Bank, International Monetary Fund, and International Trade Organization) l US Failed to ratify the Havana Charter to create ITO l Protocol of Provisional Application of GATT instead of ITO l Eight Successful Rounds of Multilateral Negotiations for Trade Liberalization under GATT

l Original 23 Contracting Parties included 11 Developing Countries (DCs) l Many DCs did not join l No effective participation of DCs until the Tokyo Round, l Import substitution the dominant dogma

The Uruguay Round – l Torturous Negotiations Over 7 Years l Single Undertaking l Establishment of the WTO l Agreement on Agriculture and GATS l TRIMS and TRIPS l Dispute Settlement System

l GATT aims at liberalization of trade through reduction of tariffs and elimination of non-tariff barriers. Its two main principles are Most Favored Nation (MFN) and National Treatment. l WTO is based on the same rules of GATT but is extended as well to services and intellectual property rights. l There are 153 members of the WTO.

What is the World Trade Organization (WTO)? l Institutional framework for –Negotiation of global trade agreements –Implementing global trade agreements –Settling disputes under the global trade agreements –Reviewing trade policies –Admitting new members

Who Governs the WTO? l The Member Countries (one country one vote rule). There are 152 member countries l Decision is based on consensus l Contrast to World Bank and IMF (controlling their boards by U.S. and EU)

Ministerial Conference General Council Council for Trade in Services Council for TRIPS Council for Trade in Goods DSB Trade Policy Review Mechanism

Who Manages the WTO? l The WTO Secretariat l Headed by a Director General

Legal Components of WTO l GATT (Agreement on Trade in Goods), now called WTO agreements l GATS (Agreement on Trade in Services) l TRIPS (Intellectual Property Agreement) l WTO Institutional Arrangement (Dispute Settlement Mechanism and Trade Policy Review) l Plurilateral Agreements

Fundamental WTO Principles l Transparency l MFN l National treatment l Due process l Reciprocity – balance of concessions – balance of rights and obligations l Least trade distorting standard

Basic GATT Framework l Barriers should be at the border l Barriers should be in the form of tariffs l No internal barriers in domestic laws l No discrimination among members l Legal binding of maximum tariffs in national schedules l Certain enumerated exceptions permitted

GATS l Trade defined in different modes of supply including 1) cross-border movement, 2) consumption abroad, 3) commercial presence, 4) temporary movement of natural persons GATS contains l Rules –Rules that apply to all services - transparency of laws, regulations, decisions, and MFN –Rules covering sectors in which products are listed in national schedules schedules –Rules covering products listed in schedules l National commitments on –National treatment –Market access (government regulations that limit decisions by producers and suppliers of services.)

Intellectual Property - TRIPS ●General Provisions & Principles ●Standards of Protection –copyrights, patents –trade marks, trade secrets, industrial design –marks of geographic origin ●Enforcement

Dispute Settlement Process ● Country must first seek to resolve dispute through bilateral consultations ●For unresolved disputes, DSB establishes panel, terms of reference ●Meetings with parties, third parties, experts ●DSB adopts Panel Report ●Request for review by Appellate Body ●Compliance, compensation or retaliation

How Are Negotiations Organized in the WTO? ● National commitments on trade measures –Request & offer procedures –Use of formulas, agreed targets, objectives ●Agreements on trade rules –Issue studied by Study and/or Working Group –Creation of negotiation committee It is the ministers who decide to launch a new round in their ministerial meetings

Current Status of Doha Round ● Negotiations are at an impasse, largely as a result of a disagreement over agriculture ●Disputes over agriculture have hampered negotiations over tariffs and services ●There is also a major disagreement over what makes the Doha Round a Development Round ●U.S. needs an extension of congressional authority to negotiate ●Delays in the conclusion of multilateral trade rounds are quite common, and do not signify end of WTO

RTAs l GATT Article XXIV and GATS Article V allows the formation of regional trade agreements (RTAs) following certain conditions. l RTAs are contradictory to MFN rule. l Conditions of RTAs following Article XXIV: 1) The majority of trade should be liberalized between members. 2) Transitional period should not exceed 10 years.

Scheme Free intra- scheme trade Common Commerci al Policy Free Factor Mobility Common monetary & fiscal policy One government Free Trade Areas YesNo Customs Union Yes No Common Market Yes No Economic Union Yes No

Reasons for Increased Number of RTAs: l US Policy towards signing more RTAs l Slowness in WTO negotiations l Domino effect.

l 385 RTAs have been notified to the GATT/WTO up to July This number has increased four times since the beginning of the 1990s. l India has a number of RTAs including Sri Lanka, Thailand, Bhutan, Singapore, ASEAN, SAFTA, talks on FTA with EU, China, Brazil, South Africa, etc.

Regional Trade Agreements No. of RTAs

RTAs in the context of World Trade Organization (WTO) There are two types of RTAs: Shallow and Deep RTAs - The shallow RTAs deal with border issues only and are more confined to manufactured products (proliferated in the 1960s) - The deep RTAs deal with border and non border issues and cover manufactured goods, services as well as rules and regulations (started to proliferate mid 1980s) With the stumbling of World Trade Organization talks, there is a great diversion to RTAs, whether this is good or bad for the welfare of the world economy is debatable

Potential Effects of Regional Trade Agreements on Developing Countries Pros  Promotion of Foreign Direct Investment  Security of Market Access  Exploitation of Economies of Scale  Trade Creation Cons  Tariff revenue loss  Trade Diversion  Reduces Preferential treatment for other countries’ exports

Trade-Creating Customs Union

Trade-Diverting Customs Union

Potential effects of Regional Trade Agreements on Developing Countries Other Effects (can be +ve or -ve)  Harmonization issues.  Political economy aspects.  Articles concerning Labor Laws (child labor) especially in sectors as cotton and related industries.  Articles concerning government procurement.  Articles concerning Environment and related strict clauses.

Examples of RTAs in the World North America Free Trade Area (NAFTA):North America Free Trade Area (NAFTA): The largest FTA in the world European Union:European Union: The largest customs union in the world

Conditions for effective liberalization l Domestic institutions need to be ready before any embarking on liberalization (including intelligent negotiations and effective commercial diplomacy) l Ways to overcome costs of liberalization should be put in place.

Thank you