GS-WTO-Principles of Trading System-Brief Notes

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Principles of Trading System ( WTO )

Principles of Trading System ( WTO )

1. Non-Discrimination:

It has two major components: 
  • The Most Favored Nation (MFN) rule, and 
  • The national treatment policy. 

The Most Favored Nation (MFN) rule

  • The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members, i.e. a WTO member has to grant the most favorable conditions under which it allows trade in a certain product type to all other WTO members. 
  • "Grant someone a special favour and you have to do the same for all other WTO members. 

The National Treatment Policy

  • National treatment means that imported goods should be treated no less favorably than domestically produced goods (at least after the foreign goods have entered the market) and was introduced to tackle non-tariff barriers to trade.

2. Reciprocity: 

  • It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule, and a desire to obtain better access to foreign markets.

3. Binding and enforceable commitments: 

  • A country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade. If satisfaction is not obtained, the complaining country may invoke the WTO dispute settlement procedures.

4. Transparency: 

  • The WTO members are required to publish their trade regulations, to maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO.

5. Safety valves: 

  • In specific circumstances, governments are able to restrict trade. The WTO's agreements permit members to take measures to protect not only the environment but also public health, animal health and plant health.

Criticism of WTO

  1. Rich countries are able to maintain high import duties and quotas in certain products, blocking imports from developing countries (e.g., clothing).
  2. The increase in non-tariff barriers such as anti-dumping measures allowed against developing countries.
  3. Many developing countries do not have the capacity to follow the negotiations and participate actively in the Uruguay Round.
  4. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) agreement, which limits developing countries from utilizing some technology that originates from abroad in their local systems (including medicines and agricultural products).
  5. It does not resolve the problem of "informal meetings" whereby industrialized countries negotiate the most important decisions.
  6. It does not reduce the de facto inequality which exists between countries with regards to an effective and efficient participation to all activities within all WTO bodies.
  7. It does not rectify the multiple violations of the general principles of law which affect the dispute settlement mechanism.
  8. The maintenance of high protection of agriculture in developed countries, while developing ones are pressed to open their markets.