Role of the WTO for Developing Countries

  • Anoop Kumar
  • Show Author Details
  • Anoop Kumar

    Advocate in Uttar Pradesh, India

Abstract

The WTO as a Multilateral Trading Forum: A failure for developing countries?The essay touches upon the various issues that have raised their ugly heads in the way of cooperation at the international trading system, the World Trade Organisation (WTO). To elucidate the real picture of the international trade, the essay has been divided into various heads, some of which point towards the developmental aspect of the WTO and some uncover the truth behind the WTO. The essay has been prepared in light of the issues raised in various ministerial conferences of the WTO. The WTO has emerged as a multilateral trading forum. It has seen a drastic cooperation among the member nations. But some issues still remain unresolved that hamper the growth of the developing member nations. Most often, the developed countries axe their own grind through the multilateral forums. The same case exists in the case of the WTO.

Type

Research Paper

Information

International Journal of Law Managment and Humanities,
Volume 4, Issue 2, Page 462 - 474

DOI: http://doi.one/10.1732/IJLMH.26086

Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.

Copyright

Copyright © IJLMH 2021

I. Introduction

There is hardly any corner of the world which is affluent in all kinds of resources. In a way every part of the world is dependent on the other part of the world. The demands of one country are fulfilled by the supply of the commodities of the other country. For example, the infrastructure of every country is dependent on the power, and mineral resources. Thus, halt in the supply of the oil and crude petroleum products by the OPEC countries may cause a hullabaloo in Indian economy. With the same token, if India refuses to supply the food products to the countries like Saudi Arabia, Iraq and Iran, the most obvious result will be starvation and famine in the later countries. To get rid of such a hard situation and to balance the international trade, we have an international body that regulates the international trade, namely World Trade Organisation (WTO).

WTO is the replacing body of GATT (General Agreement on Tariffs and Trade), which was established in 1947, in the wake of the Second World War. The idea of organization was evolved by the Bretton Woods Conference in order to regulate trade as part of a larger plan for economic recovery after World War II[1]. In 1995, WTO took the place of GATT.

II. The journey from the GATT to the WTO

The WTO, which serves as the international body that regulates trade in the world, replaced the GATT in 1995. To focus upon the importance of the WTO, a brief outlook of the other two institutions, namely the GATT and the International Trade Organisation (ITO) has to be taken. As the journey till the WTO extends from the inception of the GATT, the key issues like formation of the GATT, loopholes in the structure of the GATT, reasons behind replacing it, etc., have to be briefly discussed.

ITO – an unsuccessful effort towards the free trade.

After the Second World War, some measures were required by the nations to liberalise the trade and payments between the nations. The ITO was the first step towards that end. The Bretton Woods Conference of 1944 required the formation of an institution governing the international trade. The International Trade Organistaion was the proposed institution that tended to complement the IMF and the World Bank.

The initiative was taken by the US, along with its war-time allies, in 1945. To that end, the United Nations Economic and Social Committee, at the proposal of the United States, adopted a resolution, calling for a conference to draft a charter for an International Trade Organization (ITO). Unfortunately the ITO could not come into existence, due to the refusal of the US Congress to ratify the treaty of formation of the ITO in 1950. But in the sidelines, the developed countries dealt bilaterally on the products.

Formation of the GATT.

Though, the US Congress never ratified the draft charter of the ITO, the GATT served as the de facto institution for governing the trade among the countries. The tariff reductions (schedules) and the Articles of the draft charter containing the provisions regarding the protection of integrity of trade concessions were combined into the instrument called the General Agreement on Tariffs and Trade (GATT).

The GATT was signed on 1 January 1948. The GATT essentially touched upon the provisions covering the bilateral trade agreements. The issues like valuation for duty, national treatment on internal taxation, quantitative restrictions, subsidies, anti-dumping etc. also came into the ambit of the provisions.

The GATT was not regarded as an organisation. Hence the signatories of the GATT were termed as the Contracting Parties. The GATT brought into picture the environment conducive to trade bargaining. The 8 rounds of trade negotiations along with the ever-expanding group of the negotiating parties were successful in the reduction of tariffs and evolution of rules governing international trade.

The Uruguay Round and the birth of the WTO.

Since the establishment of the Bretton Woods system and due to the failure of the ITO, the trade rules in the international arena were governed under the aegis of the GATT. Therefore until the end of 1994, we had GATT as the only international forum to regulate the international trade issues among the nations. But it did not have the same legal and international standing as that of the International Monetary Fund (IMF) or the World Bank.

But it was in the Uruguay Round of trade negotiations, that the founding stone of the WTO was laid down. The Uruguay Round is considered to be the most extensive and most essential negotiating mandate. The talks gave emphasis on extension of the trading system into several new areas, notably trade in services and intellectual property, and to reform trade in the sensitive sectors of agriculture and textiles. Apart from that all the original GATT articles were up for review. The Uruguay round, which was underway since 1986 at the GATT Ministerial in Punta del Este, Uruguay, was concluded in December 1993. On 15th April, 1994, at Marrakesh, Morocco, this undertaking was given the final shape. It was the most extensive series of multilateral trade negotiations. On 1st January 1995, the WTO was found as an international organisation, governing the international trade relations. WTO differed from the GATT in a way that, unlike its successor, it had the same standing as that of the IMF or the World Bank. the WTO has incorporated almost the same decision making process that existed in the GATT-1997[2].

However, the journey from the GATT to the WTO was full of ironies. Firstly, the international trade system could witness the great liberalization of the tariffs and trade in the post-war period. Secondly, the success of the trade negotiations under the GATT made the global economy interdependent at an unprecedented rate. Thirdly, the US showed its role as a leader in the foundation of the international trade forum and thus it gave emphasis on the multilateral system.

III. Principles underlying the GATT and the WTO

The key principle that served as the founding stone of the GATT was the open and non-discriminatory trade, to be precise, “open multilateral system”.  The open multilateral system was intended to be the cornerstone of the free trade in the international arena.

To accentuate this goal, the provisions were laid down regarding the prevention of the export subsidies and quantitative restriction on trade[3]. To fulfill the dream of free trade, zero trade tariffs was the paramount condition. Unfortunately, there was no such commitment on the part of the contracting parties that ensured zero trade tariffs. However, gradually, some negotiations on the “trade tariffs concessions” came into the    picture. The nation that granted tariffs concession could not be discriminatory in granting such concessions[4]. The nation granting such a concession had to extend the same to all the contracting parties. Moreover, the tariff rates were bound and it could not be raise unless the escape clause was invoked.

Following are the key principles of the trade negotiations that have effect over the functions of the WTO:

  1. A non-discriminatory trading system. The paramount principle of the WTO is that the member countries should treat its trading partners equally. in other words the practices like the low custom duty rate for some trading partners, in discrimination with others, should not be observed. if a country allows low custom duty for a trading partner, it has to allow the same for all the trading partners.

The abovementioned principle can be termed as the “Most Favoured Nation” (MFN). The MFN treatment lays down the responsibility over all the members of the WTO to treat all their trading partners equally as the “most favoured” trading partners[5].

There can be some exceptions to the MFN treatment. For ex., some a group of countries may decide to enter into a free trade agreement that may apply only to the goods traded in those countries. Or they can give developing countries special access to their markets.

Apart from this, the WTO principles also insist upon the “national treatment” clause, which says that the products of the foreign countries should be treated on a par with those of the domestic market. The same applies to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. The national treatment clause operates once the foreign products enter the domestic market[6].

  1. Freer trade through negotiations. A free and unhindered trade is possible only when the obstacles in the way of the international trade, termed as the trade barriers, are done away with. These trade barriers include the high customs duties (or tariffs) and measure such as import bans or quotas that restrict quantities selectively.

Since the year of the creation of the GATT, i.e., 1947-48, there have been eight rounds of trade negotiations. The ninth round, under the Doha Development Agenda, is underway. Through the efforts of the previous rounds, the GATT succeeded in securing lower trade tariffs on the industrial goods. The WTO also emphasises at the opening of the market for the foreign goods, for which some adjustment has to be made by the countries. The developing countries require the longer period of time for the adjustment of their markets.

  1. A country can invest in its trading partner, only if it has the surety that its trading partner is going to treat the goods and services of the investing country, without any discrimination. In the WTO, when countries agree to open their markets for goods or services, they “bind” their commitments. For goods, these bindings amount to ceilings on customs tariff rates. Sometimes in case of developing countries, the countries tax the imports at lower rate. In developed countries the rates actually charged and the bound rates tend to be the same.

A country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade.

  1. Promotion of fair competition. The WTO is described as the “free-trade” institution. It provides for tariffs and various forms of protection. The WTO is essentially, an institution, with an aim of establishment of open, fair and undistorted competition.

Thus, the rules of non-discrimination (MFN and national treatment), along with the provisions regarding dumping and subsidies, form the part of this principle.

  1. Development and economic reform. The developing countries need the flexibility in the time they take for the implementation of the system’s agreements. The agreements of the WTO inherit the earlier provisions of the GATT that allows special assistance and trade concessions for the developing countries.

IV. Dispute Resolution Mechanisms

The dispute settlements in the WTO are carried out under the WTO Dispute Settlement Understanding (DSU). The rules and procedures of the DSU are applicable on all the agreements of the WTO agreements. It is not the machinery that has the working similar to a tribunal or a court.

At the initial stages of dispute among the contracting parties, the DSU seeks the consultation between the parties in dispute. If the consultation process fails, the panel is set up for the settlement of the dispute. Provisions of appeal and possible compensation or retaliation on the non-compliance with an adverse WTO decision by a given date, are also covered by the DSU. The dispute resolution systems under the GATT as well as the WTO have been discussed in order to bring a picture depicting the comparative study of both.

Loopholes in the dispute settlement mechanism of the GATT.

The GATT dispute resolution mechanism was under the question from every corner of the world. The reason behind the lack of confidence in the effectiveness of the dispute settlement body was the propensity of the contracting parties to ignore the findings of the panel.

The provisions of the GATT dispute settlement mechanism were mild. Article XXII of the GATT was concerned with the consultation between the disputed parties, which was not obligatory[7]. The developing countries held the opinion that the GATT 1947 dispute settlement mechanism was full of flaws. The GATT dispute resolution mechanism was not keen towards the interest of the developing countries.

During the foundation of the GATT, the present developing countries were under the bondage of the colonial chain. Along with that, there was lack of experienced personnel to deal with the matters and disputes of the GATT. To add fuel to the fire, the cost of bringing the disputes was high.

The formation of Panels and Panel proceedings took too much time and the proceedings were prone to violations. There was no surety of the end result. Any claim against the developed countries resulted in the benefits of the developed countries under the Generalized System of Preferences (GSP) or through any retaliatory action by the developed country contracting party. If there was any finding against a developed country, obstruction took place in the panel proceedings. But a developing county complainant was always at a disadvantaged position[8]. Moreover, the developing countries suffered from division amongst themselves.

The developing countries learnt from the experience before the independence. To avoid the situation that fettered them with the chain of slavery in the near future, they adopted the economy that was away from the trade with other countries. India adopted the socialist pattern of its economy, following which the doors were shut for the other countries till the era of liberalisation. The economy also disregarded the foreign direct investments.

Reforms in the dispute resolution mechanism of the GATT.

In 1965, Brazil and Uruguay proposed for reforms in the Article. XXIII that dealt with procedures in the interest of the developing countries. In 1966, the Decision (Rules) on Procedures under Article XXIII was agreed upon and the disputes between the developing and the developed countries contracting parties were taken care of through the same. This was the positive step towards the reform in the GATT proceedings.

But the 1966 procedures were not used extensively by the developing countries as during 1958-78, number of the cases declined. At later stages, the 1982 Decision, 1984 Decision and the 1989 Decision were the reformative steps in the concern of the developing countries.

Dispute resolution under the WTO[9].

The working of the Dispute Settlement Body comes into light when the contracting party feels that another contracting party is violating any aspect of the WTO agreements and in furtherance of that, it brings the complaint against that country. The initial action is the settlement of the dispute through the medium of consultation and it seeks to resolve the dispute mutually. If the consultations fail, a panel is constituted on the request of the complaining country. The panel thus established consists of three persons with appropriate expertise from the countries not the party to the dispute.

The panel assesses all the evidences, in light of the rules and proceedings of the WTO. The alternative means of dispute settlement (which include good offices, conciliation and mediation[10]) are also open to the disputed parties.

If the WTO members, acting through their Dispute Settlement Body (DSB), do not stand against the panel report, the report is automatically accepted. The report also ceases to be accepted if one of the parties in dispute intends to appeal.

Unlike the GATT, the WTO members required a unanimous decision to decline the reports of the panel. In the GATT, any member country, including the country in complaint, could block the reports. In the DSU, text lays down that the work of the panel can extend up to 6 months. However, in the case of urgency, the working of the DSU has to be summed up within 3 months.

The DSB considers the panel reports for adoption, 20 days after it is issued to its members. Within 60 days of its issuance, the panel report is automatically accepted, unless it is declined by the unanimous consent of the DSB or the party in dispute discerns its intention to go in appeal.

The Appellate Body under the WTO comprises of 7 members. Of these 7 members, 3 serve on a given case and hear appeals. The DSB established the Appellate Body in 1995. The members of the Appellate Body are appointed by consensus for four years[11]. The appointed person can be reappointed by the DSB[12].

The appellate proceedings should not exceed 60 days from the date the party notifies its intention to go in appeal. The resulting report stands adopted by the DSB and unconditionally accepted by the parties, unless, within 30 days of its issuance to the members, the DSB unanimously decides against its adoption.

Once the process is completed, the countries are expected to implement recommendations of the Panel/ Appellate Body reports. If they refuse to implement the reports, the complaining countries can seek compensation from them. They can also use the mode of suspension of concessions (usually increased trade barriers) against them.

V. Critical evaluation of the dispute resolution under the WTO.

The dispute settlement across agreements motivated the advocates of the intellectual property protection to incorporate it in the Uruguay Round negotiations. But unfortunately, the dispute resolution mechanism of the WTO is suffering from the pain of continuous violations. There have been possibilities that countries retaliate even before the panel gives its report.  This issue remains disputed and it has to be addressed under the dispute settlement mechanism of the WTO.

The threat to expel from the WTO membership in case of violations of rules, does not seem to be effective, as the same can be used by the members reluctant to set a precedent by expelling another lest something should happen to them.

The DSU suffers from the pains of the problems of implementation of its decisions.  Mexico has raised the issue of non-compliance with the panel rulings as a problem with the DSU. Losses due to the non-compliance by rulings and procedural delays have amount to hundreds of millions of dollars each year. The Mexican paper also points that the average period of time between the establishment of panel and expiry of reasonable period was 775 days, which grew to 1507 days once the consultation period was included[13].

The latest data reveal that around 373 disputes were brought before the DSU. Out of these disputes, in the 60 percent cases, the developed Members countries were involved and rest 40 percent involved the developing countries. 138 original panels have been composed covering 172 disputes; of these 120 panels have completed their work.  111 panel reports and 70 related appellate reports have been circulated to Members and adopted by the DSB. Of the 373 cases initiated through 1 April 2008 in the WTO. The U.S. has been the complainant in 89 cases (43 of which went to panels) and the respondent in 99 cases (56 of which went to panels) [14].

VI. WTO and the Developing Countries.

The WTO replaced the GATT in 1995. It was the more powerful institution than the GATT. The WTO had the institutional foundation and recognition. Moreover, its dispute resolution system was more effective in comparison to its predecessor. The fear of retaliation for non-compliance with the findings of the panel compels the member nations to abide by its procedures and findings. The WTO was also founded on the aims and objective of its predecessor, i.e., raising standards of living, ensuring full employment and a large and steadily growing volume of real income through the trade and economic endeavors.

However, since the year of its foundation, the developed countries have always made attempts to use the WTO as a forum for serving their interests. Until the Uruguay Round, the trade negotiations were focused on the non-farm activities, as the US wanted to protect its farm sector. In the subsequent years, the corporate interests of these developed countries have taken place in the WTO agenda. Agriculture, services (financial, telecommunications, information technology, etc.), intellectual property rights and electronic commerce are some of the subjects in the WTO agenda.

There are around 153 members in the WTO. Of these 150 members, over 75% are developing countries[15].

The helping hands of the WTO for the developing countries.

Like its predecessor GATT, the WTO also entails some provisions regarding the assistance of the developing countries. There are a number of ways through which the WTO embraces the development aspect of the developing countries. Some of the provisions and programmes that provide for the assistance to the developing countries are as follows:

  1. Trade Related Technical Assistance (TRTA). The Multilateral Trading System, as confirmed by Ministers at Doha (December 2001), substantiates the provision of the technical assistance and enhancement of the trade capacity. This was further underlined and strengthened at the Ministerial Conference in Hong Kong, China (December 2005). Within the WTO Secretariat, TRTA is coordinated by the Institute for Training and Technical Cooperation (ITTC). The Committee on Trade and Development is the body responsible for overseeing all TRTA activities.
  2. Provisions under the DSU. The provisions of the DSU advocate for the special attention to the problems of the developing countries[16]. Further, in a dispute involving the developing country member, one of the panelists can be appointed from the developing country[17]. If a complaint is brought against a developing country, the time for consultations (before a panel is convened) may be extended, and if the dispute goes to a panel, the deadlines for the developing country to make its submissions may be relaxed[18].
  3. Advisory Centre on WTO Law. The membership based Advisory Centre on WTO Law, which has been set up in Geneva provide legal assistance to developing countries[19].
  4. The WTO Committee on Trade and Development. The A WTO Committee on Trade and Development, assisted by a Sub-Committee on Least-Developed Countries, looks at developing countries’ special needs.

Apart from these provisions, the 2001 Ministerial Conference in Doha set out a range of issues concerning developing countries. Before that, in 1997, a high-level meeting was called to look into the trade and technical assistance to the least developed countries.

Dispute resolution and problems faced by developing countries.

Most of the developing countries, partly because they are small and partly because they lack experience, find it difficult to cope with new WTO dispute settlement mechanism. About two thirds of the Least Developed Countries (LDC) find no representation in the WTO[20]. The developing countries face at least three major problems regarding the implementation of the decisions of the decision of the DSP:

  1. The time involved between the start of the dispute settlement process and the withdrawal of the offending measure may span up to three years. These three years may cause hamper to the export opportunities for the developing country in the concerned developed country. There is no retrospective relief to the developing country from the time incorrect measure was applied by the respondent Member country. Thus, the period of three years may levy a heavy cost on the developing country.
  2. The developing countries, during the dispute settlement period, face substantial export loss. But there is lack of remedy in form of compensation, to them, even when the measures are found to be in contravention to the WTO rules.
  3. Retaliation is the ultimate remedy for the complaining country to take action against the defending country. But in the case of the developing countries, it is difficult to take retaliatory action against the developed countries. The reason being, apart from the political considerations, the developing countries are dependent on the developed countries for their economic growth and development.

The Singapore Issue and the bone of contentions

The bone of contention between the developed and the developing countries has always hampered the very objective of the WTO. Right from the ministerial conference of the Singapore till negotiations of the Doha round, the WTO has faced a tug of war between the developed and the developing nations.

The 1996 Ministerial Conference of Singapore faced the initial heat of dispute between the developed and the developing nations. The developed countries, since the Uruguay Round, were looking for some binding agreement on the subject-matter of investment. Before the beginning of the Ministerial Conference of Singapore, the developed countries, including the United States, attempted to have mature rules for investment per se, through the agreement being negotiated on Trade-Related Investment Measures (TRIMs). The United States also advocated for the right to establishment and national treatment for foreign investors. The European Commission (EC) also tended to persuade the developing nations on launching the negotiations focused on the WTO investment agreement.

By mid-1996, three new issues, namely, competition, transparency in government procurement and trade facilitation were added to the agenda of the Singapore Ministerial, by the EC and the United States. However, these issues from very inception of the proposal were opposed by the prominent developing countries, including India, Indonesia, Malaysia, Tanzania and likes. The paramount concern of the developing countries was the implementation of the Uruguay Round agreements in the WTO.

Despite severe opposition from the developing countries, the issues were presented in the Singapore Ministerial in 1996. The decisions at the Singapore Ministerial pertained, among other things, to the establishment of the three new working groups on trade and investment, trade and competition policy, and transparency in government procurement. The decision was surrounded by the controversies, as many of the developing countries were not involved in the discussions that led to the text.

Further, these issues were again presented before the Ministerial Conference of Seattle, in 1999. The Draft Ministerial Text for Seattle that was presented in Geneva was focused on obtaining the assent of the developing countries to launch the Ministerial Conference. The Like-Minded Group of Developing Countries that had formed around early 1999 was against the issues. In the Seattle Ministerial also, the developing countries were pressurized by the developed countries. However, the Seattle meeting collapsed on the last day, without any Declaration being issued, as it became clear that the developing countries, which were not invited in the meeting, will refuse to adopt the text.

The Singapore issues were further presented in the fourth Ministerial Conference at Doha in 2001, popularly known as the Doha Development Agenda (DDA).But due to the tug of war between the developed and the developing countries, these issues were decided to be negotiated after the fifth Ministerial Conference (scheduled in 2003).

The Ministerial Conference of Cancun, 2003, was nothing but eyewash. The continuing impasse over the Singapore issues caused a death blow to the Ministerial and it failed without any progress. At last in the sixth Ministerial Conference, held at Hong Kong in 2005, through the means of the “July Package”, some relieves were granted to the developing countries. As far as the text of the July package goes, the three issues of the Singapore Ministerial, namely issues of investment, competition and transparency in government procurement would not form part of the Doha work programme and no work towards negotiations on these issues would take place in the WTO during the Doha Round. However, negotiation on the issue of “trade facilitation” was not done away with.

VII. Conclusion

The trade negotiation mechanism has treaded the path of international trade for 60 years. The mechanism, has witnessed various aspects of development in the arena of the international trade. Since the establishment of the GATT in 1947, the international trade mechanism has been able to meet every aspect of international trade as well as to short out the differences between the developed nations on one hand and the developing nations and the LDCs on the other.

But unfortunately, the international trade mechanism, to be precise, the WTO, has faced severe criticisms from the developing nations as well as the LDCs. On one hand, the WTO lays down the provisions, regarding the developmental aspects of the developing countries and the LDCs. On the other hand, the major developed countries have left no stone unturned for making it the forum catering to their own needs.

These drawbacks of the multilateral trading system, along with several other issues are needed to be clarified in light of the WTO provisions and the international cooperation. However, the success of the WTO through the agreements, contradict the opinion of those, who consider the WTO as a failed mechanism for international trade.

*****

FOOTNOTES

[1] General Agreement on Tariffs and Trade, Wikipedia (Mar 9, 2021, 08:05 PM), http://en.wikipedia.org/wiki /General_Agreement_on_Tariffs_and_Trade#Inception.

[2] Art. IX of the Agreement Establishing the WTO.

[3] But some provisions served as the grandfather clause that allowed exception to these provisions.

[4] The Most Favoured Nations clause prevented the contracting party from exercising its discriminatory role.

[5] Principles of the trading system, World Trade Organization (Mar 9, 2021, 08:05 PM), http://www.wto.org/ english/thewto_e/whatis_e/tif_e/fact2_e.htm

[6] Art. 3 of the GATT, Art. 17 of the GATS and Art. 3 of TRIPS also substantiate the national treatment clause.

[7] ARTICLE XXII of the GATT says: Each contracting party shall accord sympathetic consideration to, and shall afford adequate opportunity for consultation regarding, such representations as may be made by another contracting party with respect to any matter affecting the operation of this Agreement. (WTO, 1999).

[8] M. B. Rao and Manjula Guru, WTO Dispute Settlement and Developing Countries, 2004, Lexis Nexis, Butterworths, p. 11.

[9] Art. 2 of the DSU.

[10] Art. 5 of the DSU.

[11] Art. 2.4 of the DSU.

[12] Art. 17.2 of the DSU.

[13] World Trade and Development Report, Research and Information System for Developing Countries, 2007, p. 109.

[14] Bruce Wilson, Dispute Settlement in the WTO: An Update. (Available at www.google.com).

[15] Principles of the trading system, World Trade Organization (Mar 9, 2021, 08:05 PM), http://www.wto.org/ english/thewto_e/whatis_e/tif_e/org6_e.htm

[16] Art. 4.10 of DSU.

[17] Art. 8.10 of DSU.

[18] Art. 12.10 of DSU.

[19] Art. 2.1 of the Agreement establishing the Advisory Centre on WTO Law.

[20] World Trade and Development Report, Research and Information System for Developing Countries, 2007, p. 109.