2. Prof. Guangming RAO of CTBU Lecture 2 Framework of WTO rules Teaching purpose ： Understanding WTO functions and its framework of rules. Teaching Focus: main principles and its exceptions Teaching hours ： Teaching hours ： 6 hours Teaching methods ： Concept analysis and case study. Teaching proceedings Teaching proceedings: 2.1 WTO Functions 2.2 WTO Framework of rules 2.3 Most-favore nation treatment 2.4 National treatment 2.5 Transparency Video: basic principles of the WTO system

3. Prof. Guangming RAO of CTBU The principles of The trading system should be... without discrimination — a country should not discriminate between its trading partners (giving them equally “most-favoured-nation” or MFN status); and it should not discriminate between its own and foreign products, services or nationals (giving them “national treatment”); freer — barriers coming down through negotiation; 2.1 WTO functions (1/4)

4. Prof. Guangming RAO of CTBU predictable — foreign companies, investors and governments should be confident that trade barriers (including tariffs and non-tariff barriers) should not be raised arbitrarily; tariff rates and market-opening commitments are “bound” in the WTO; more competitive — discouraging “unfair” practices such as export subsidies and dumping products at below cost to gain market share; more beneficial for less developed countries — giving them more time to adjust, greater flexibility, and special privileges. 2.1 WTO functions (2/4)

5. Prof. Guangming RAO of CTBU Implementation, administration and operation of the covered agreements It provides the framework, for those of its Members that have accepted them, for facilitating its implementation, administration and operation of the Plurilateral Trade Agreements. Forum for negotiations It may also, on decision by the Ministerial Conference, provide a forum for further negotiations, and a framework for the implementation of their results, on other issues arising in the multilateral trade relations among its Members. 2.1 WTO functions (3/4)

6. Prof. Guangming RAO of CTBU Dispute settlement The WTO administers the integrated dispute settlement system, which is a central element in providing security and predictability to the multilateral trading system, serving to preserve the rights and obligations of the Members of the WTO. Review of national trade policies The WTO administers the Trade Policy Review Mechanism, which is designed to contribute to greater transparency and understanding of the trade policies and practices of WTO Members, to their improved adherence to the rules, disciplines and commitments of the multilateral trading system, and hence to the smoother functioning of the system. Coherence in global economic policy-making A Ministerial Declaration adopted at the Marrakesh Ministerial Meeting recognizes the role of trade liberalization in achieving greater coherence in global economic policy-making. For this purpose, it cooperates with the IMF and the World Bank. 2.1 WTO functions (4/4)

7. Prof. Guangming RAO of CTBU GATT 1947 （ 38 articles ） MFN & Tariffs concession Non-tariffs measures and Dispute settlement Market access in general aspects of business Trade and developing countries 2.2 WTO Framework of rules (1/6)

8. Prof. Guangming RAO of CTBU include ： 1.GATT1994 ， 2. Agreement on Agriculture; 3. Sanitary and Phytosanitary Measures Agreement （ SPS) 4. Agreement on Textiles and Clothing (ATC); 5. Technical Barriers to Trade Agreement (TBT); 6. Trade-Related Investment Measures (TRIMs) Agreement; 7. GATT1994 Articles VI-Anti-Dumping Agreement; 8. GATT1994 Article VII- Rules for the evaluation of goods at customs; 9. Preshipment Inspection Agreement; 10. Rules of Origin Agreement; 11. Agreement on Import Licensing Procedures; 12. Subsidies and Countervailing Measures; 13. Agreement on Safeguards. Enclosure 1 A 2.2 WTO Framework of rules (2/6)

9. Prof. Guangming RAO of CTBU 1 B General Agreement on Trade in services （ GATS ） ; 1 C Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS); 2 Understanding on Rules and Procedures Governing the Settlement of Disputes; 3 Trade Policy Review Mechanism. 4 Agreement on Trade in Civil Aircraft, Agreement on Government Procurement, and other regulations Enclosure 1 B ， 1 C ， 2 ， 3 ， 4 2.2 WTO Framework of rules (3/6)

10. Prof. Guangming RAO of CTBU DC_ industrialization Export growth WTO_ GATT LDC_ goods barriers NI riseservices rise WTO_ GATS LDC_ services barriers Develop- ing Gap Investment transfer WTO_ TRIMs LDC_ cross- cultural barriers Tech transfer WTO_ TRIPs LDC_ property rights violation External -ization New (3rd DC) industrialized nations’ goods export DC_ goods import Trade protection up N-S Gap 2.2 WTO Framework of rules (4/6)

11. Prof. Guangming RAO of CTBU Goal of the GATT ： trade liberalization 2.2 WTO Framework of rules (5/6)

12. Prof. Guangming RAO of CTBU WTO: Basic principles The basic principles of the multilateral trading system, as embodied in the WTO Agreement, derive mostly from the principles that constituted the foundations of the GATT. Trade without discrimination is one of these basic principles, guaranteed through the operation of various clauses included in the multilateral agreements on trade in goods, in the GATS, and in TRIPs Agreement Most-favor-nation treatment National treatment Tariffs Concession Prohibition of quantitative limitation Transparency 2.2 WTO Framework of rules (6/6)

13. Prof. Guangming RAO of CTBU 2.3 Most-favored-nation treatment (MFN)(1/4) Most-favoured-nation (MFN): treating other people equally: Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members. Members of the WTO have entered into similar commitments, under the GATT 1994 (Article I) for trade in goods, under the GATS (Article II) in relation to treatment of service suppliers and trade in services, and under the TRIPs Agreement (Article 4) in regard to the protection of intellectual property.

14. Prof. Guangming RAO of CTBU Why ‘most-favoured’? any other country all other contracting parties Article I: Any advantage, favor, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties. 任何其他国家 所有其他缔约国 (“ 缔约国对来自或输往任何其他国家的产品，所 给予的任何利益、优惠、特权或豁免，应立即无 条件地给予来自或输往所有其他缔约国的相同产 品 ” ) 2.3 Most-favored-nation treatment (MFN)(2/4)

15. Prof. Guangming RAO of CTBU Some exceptions for MFN treatment For example, countries can set up a free trade agreement that applies only to goods traded within the group — discriminating against goods from outside. Or they can give developing countries special access to their markets. Or a country can raise barriers against products that are considered to be traded unfairly from specific countries. And in services, countries are allowed, in limited circumstances, to discriminate. But 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. 2.3 Most-favored-nation treatment (MFN)(3/4)

16. Prof. Guangming RAO of CTBU Regional trade arrangements (CEPA, the Closer Economic Partnership Arrangement between Hong kong and China Mainland ) Preferential treatment for developing countries Trade in borders ( business around 15km zone); Trade in respect to intellectual property rights Exceptions on the GATS Some exceptions for MFN treatment 2.3 Most-favored-nation treatment (MFN)(4/4)

17. Prof. Guangming RAO of CTBU CEPA : Jan.1st, 2004 Product Types Cumulative No. of CO(CEPA) Applications Received Cumulative No. of CO(CEPA)s Approved 1 Food and Beverages2,8682,824 2 Food Residues and Animal Fodder33 3 Chemical Products918866 4 Pharmaceutical Products2,4702,417 5 Coloring Matters 713692 6 Cosmetics 3126 7 Plastics and Plastic Articles 2,0832,051 8 Leather and Firkin Articles86 9 Paper and Printed Articles992954 10 Textiles and Clothing5,3134,937 11 Jewelry and Precious Metals101100 12 Base Metal Products607596 13 Machinery and Mechanical Appliances98 14 Electrical and Electronic Products271259 15 Optical, Photographic and Cinematographic Instruments & Parts 5047 16 Clocks and Watches and Parts Thereof113101 17 Furniture11 18 Toys and Games or Sports Requisites11 19 Miscellaneous22 Total16,47515,810

18. Prof. Guangming RAO of CTBU CEPA : Jan.1st, 2004 Service Sector No. of Applications Received No. of Applications Approved 1 Legal services12 2 Construction professional services and Construction and related engineering services 5650 3 Medical and dental services11 4 Real estate services1716 5 Advertising services7975 6 Management consulting services3426 7 Convention and exhibition services99 8 Value-added telecommunications services2824 9 Audiovisual services1816 10 Distribution services258252 11 All insurance and insurance-related services33 12 Banking and other financial services (excluding insurance and securities)77 13 Securities and future services65 14 Tourism and travel related services55 15 Transport and logistics services459455 16 Information technology services99 17 Job referral agency services and job intermediary services1716 18 Cultural services (excluding audiovisual services)11 19 Airport Services55 20 Trade mark agency services22 Total1026989

19. Prof. Guangming RAO of CTBU Imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. 2.4 National treatment (1/6) Treating foreigners and locals equally

20. Prof. Guangming RAO of CTBU This principle of “national treatment” is also found in all the three main WTO agreements (Article 3 of GATT, Article 17 of GATS and Article 3 of TRIPS), although once again the principle is handled slightly differently in each of these. National treatment only applies once a product, service or item of property has entered the 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. Treating foreigners and locals equally 2.4 National treatment (2/6)

21. Prof. Guangming RAO of CTBU What is the National Treatment? The contracting parties recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production 不低于 ( 给外国人、外国产品、外国资本、外国劳务以不低于本国国 人的待遇 ) 。 2.4 National treatment (3/6)

22. Prof. Guangming RAO of CTBU 200020022003 China0.470.550.70 U.S.13.8014.8015.00 Japan10.199.6211.17 UK14.4417.9019.48 Average income comparing （ non-agricultural ） US$/hour ER :1$=8.28RMB,data origin: International Statistics 2004 200020022003 China 46.646.946.7 U.S.34.534.246.7 Japan43.042.442.1 UK39.839.539.6 Working time comparing (hours/week) National Treatment for workforce 2.4 National treatment (4/6)

23. Prof. Guangming RAO of CTBU Exceptions for National Treatment General exception: Considering the security of national economic development: 1. Government procurement 2. Father ’ s clauses 3. Differential charges for transportation: The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product. 4. Indirect subsidies to the NEs for protection of environment and domestic infant industries 5. Cinema Films 2.4 National treatment (5/6)

24. Prof. Guangming RAO of CTBU Security exception: 1. protection of public morals, national treasures 2. Protection of human, animal or plant life and health 3. Protection of business secrets Exceptions for National Treatment 2.4 National treatment (6/6)

25. Prof. Guangming RAO of CTBU 2.5 Transparency Provisions on notification requirements and the Trade Policy Review Mechanism are set out in the WTO Agreement and its Annexes, with the objective of guaranteeing the fullest transparency possible in the trade policies of its Members in goods, services and the protection of intellectual property rights. Article X of GATT 1994 deals with the publication and administration of trade regulations; Article III of GATS sets out provisions on transparency as one of the general obligations and disciplines under that agreement; Article 3 establishes transparency rules for the TRIPs Agreement.

26. Prof. Guangming RAO of CTBU Problem-solving: 1.Suppose a trade dispute arises because a country has taken action on trade (for example imposed a tax or restricted imports) under an environmental agreement outside the WTO and another country objects. Should the dispute be handled under the WTO or under the other agreement? 2. Look at the following cartoon below, and tell your impressions about it to the class.

27. Prof. Guangming RAO of CTBU Questions to be discussed What is the difference between the rules of MFN treatment and National Treatment? Which is better of global trade liberalization and regional economic integration? Why? Which develops faster of global trade liberalization and regional economic integration? Why?