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Effectiveness of WTO in Nepal and Brazil

A Comprehensive Study on the effectiveness of WTO in Nepal and Brazil

Chapter 1: Introduction to the World Trade Organization

Following World War II, many developed countries sought to establish an open and non-discriminatory trading system with an aim of increasing the economic well-being and improving the standard of living in all the countries. Aware of the role played by trade barriers in the economic depression that occurred in 1930s and the following military aggression, the countries saw open trade as an essential element for peace and stability.

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These countries sought to establish International Trade Organization (ITO) which would address all issues related directly or indirectly to trade. ITO was to be a specialized agency of the United Nations, due to this the ITO treaty was declined by the member nations especially the United States, thus ITO never came into effect. In place of ITO a provisional agreement on trade and tariffs which was called General Agreement on Tariff and Trade (GATT) was established in 1948.

The aim of GATT was the reduction of trade barriers and for this member nations negotiated periodically. These negotiations were called “rounds”. The main negotiations that took place during 1986-1994 aimed at reforming the GATT system to include service trade and the trade in intellectual property, these negotiations led to the establishment of World Trade Organization. The last round of the negotiations that were conducted in Uruguay laid down the framework of World Trade Organization. The WTO was an improvement over GATT since it included new councils and committees to oversee the trade of the member nation, a stronger dispute settlement system and a regular review of trade policies of the member nations. Also, in contrast with GATT, the WTO was a permanent structure that included members rather than contracting parties. The decisions in WTO are made by consensus and not by formal vote and the decisions are taken by the member nations.

The world trade organization was established on 1st January 1995. It is the most important organizations that governs the world trade. It has 150 member nations along with 31 observer governments. These member nations take all the decisions regarding the world trade and presently account for 95% of the world trade. The trade agreements administered by the world trade organization covers over a broad range of trade in goods and services and are virtually applicable on all government practices that are directly related to trade like tariff, government procurement, etc. the world trade organization agreements are based on certain principles:-

  1. Non-discriminatory treatment amongst the member nations. An exception to this principle is the preferential treatment given to the Least-developed countries.
  2. Open information on rules and regulations
  3. Negotiated limits on trade barriers
  4. Settlement of disputes through specific procedures

Since 1994, when the WTO was established, several decisions for LDCs have been taken which are listed as follows:-

  1. The WTO agreement has special provisions for the developing countries.
  2. The main body in WTO that focuses on trade and debt, and technology transfer in the developing countries is the committee on trade and development.
  3. The WTO secretariat provides technical assistance (providing training of different kinds) for developing countries.
  4. Extra time for developing countries to fulfill their commitments
  5. Provisions have been designed to increase the trading opportunities of the developing countries through greater market access.
  6. Provisions have been adopted to safeguard the interests of the developing countries.
  7. Various other provisions have been provided by the WTO as means of helping the developing countries.

But still WTO interventions have not been effective in most LDCs. Many reasons for ineffective intervention of WTO have been put forward which include lack of financial and human resources to fulfill their commitments especially of intellectual property agreement and trade related investment measures, also even though the markets access for the developing countries has increased but they have not met their expectations for exports in two major areas – agriculture and textiles. Also it is said that developed countries have failed to implement the agreements in a ways that would be beneficial for the developing countries.

The basic argument of this paper is that even after giving preferential treatment to the LDCs, still the LDCs are being sidelined by the global players in the WTO agreements. The major failure of WTO is that it has failed to break the link between market size and political weight that would give small and poor countries a voice in the trade negotiations. And since developing countries have gained an increasing importance in the global economy due to their large numbers, the WTO needs to ensure its effective intervention in these countries and also that these developing countries should not be sidelined in the WTO agreements. The objectives of this paper are specified below:-

  1. To understand the Doha Development initiative undertaken by WTO
  2. To analyze WTO interventions in Nepal and Brazil
  3. To put forward recommendations in order to improve the effectiveness of WTO interventions.

Chapter 2: Doha Development Initiative

The DOHA round was launched in the fourth ministerial conference of WTO that took place in DOHA, QATAR in November 2001. It is the latest round of negotiations in WTO which aims to reform the international trading system by lowering the trade barriers and revising the trading rules. The subsequent ministerial meetings have been held in Cancun, Mexico (2003), Hong-Kong (2005), Paris, France (2005), Germany (2007), and Geneva, Switzerland (2008).

The fundamental objective of the Doha round is to improve the trading perspectives of the developing countries. It also aims at eliminating the problems faced by the developing countries in implementing the WTO agreements.

At the DOHA ministerial conference 3 documents that provided guidance for future actions were adopted. These three documents were:-

  1. The ministerial declaration which includes the preamble and a work program for new DOHA and for further future actions. This declaration includes agendas like agriculture, services, topics of interest to the developing countries, changes to WTO rules, industrial tariffs and other such provisions.
  2. The declaration on TRIPS (Trade Related Intellectual Property Rights) Agreement and Public Health. It politically interprets the WTO Agreements on TRIPS.
  3. A document on trade related issues and concerns. It includes all those topics that are of interest to the developing countries.

The DOHA declaration address mainly 21 subjects that are listed as follows:-

  1. Agriculture- the objectives under this head are; rural development and food security for least developed countries, provision of export credit, export credit guarantees or insurance programs, and tariff rate quotas.
  2. Non-agricultural market access- the aim under this head is to reduce or eliminate the tariff barriers as well as non-tariff barriers on products that are in the export interests of the developing countries.
  3. Services- it aims to liberalize the trade in services.
  4. Trade facilitation
  5. Rules – it includes rules for anti-dumping, subsidies and regional trade agreements.
  6. Trade and environment
  7. Trade related aspects of intellectual property rights (TRIPS) – this includes further subjects like Geographical indications: multilateral register for wines and spirits, Trips, biological diversity and traditional knowledge, Geographical indications – ‘extension’, DOHA special issue: TRIPS and public health and TRIPS non-violation and situation complaints.
  8. Relationship between trade and investment- it aims to balance the interests of the countries where the foreign investment develops and where it is invested, Countries’ right to regulate investment, development, public interest, and it also places emphasis on the need to support and cooperate with the developing countries.
  9. Interaction between trade and competition policy- it focuses on transparency, procedural fairness and non-discrimination along with supporting the progressive reinforcement of competitive institutions in the developing countries through capacity building.
  10. Transparency in government procurement
  11. Dispute settlement understanding
  12. Electronic commerce
  13. Small economies
  14. Trade, debt and finance
  15. Trade and transfer of technology
  16. Technical cooperation and capacity building
  17. Least developed countries- the objectives under this head are to increase the market access for the least developed countries and to provide duty-free and quota-free products.
  18. Special and differential treatment – it aims at providing special treatment to the least developed countries by providing them longer periods for the implementation of the WTO agreements and it also aims at increasing the trade opportunities for the least developed countries.
  19. Implementation – related issues and concerns
  20. Integrated framework
  21. Commodity issues

The most important thing that occurred at the DOHA ministerial conference was that before when GATT was established only the developed countries exclusively took the major decisions, whereas in the DOHA ministerial conference the developing countries demanded the addressing of their interests. Since the developing countries played the major role in setting the plan of action in the DOHA ministerial conference thus it came to be known as DOHA Development Agenda.

At the 5th ministerial conference which was held in Cancun, Mexico, during 10th-14th September 2003, the DOHA meeting was conducted which aimed at evaluating the progress of the DOHA Development Agenda and provide any political guidance and take necessary decisions. It was agreed during this ministerial conference that the DOHA Development Round would conclude on 1st January 2005. However, at this ministerial conference no framework could be developed for the guidance of future negotiations, thus this ministerial conference was a failure and questions were raised regarding the fulfillment of the 1st January 2005 deadline.

The major reasons due to which this conference collapsed were that firstly, the issues that arose in the Singapore ministerial conference could not be resolves. Some of these issues were related to the transparency in the government procurement, trade facilitation (custom issues), trade and investment, and trade and competition. There arose a lot of discontent between the developing and the developed countries. These issues were not addressed to by many developing nations, though Europe (EU) agreed to retreat on certain issues. Secondly it was felt that few countries did not come to the Cancun ministerial conference to negotiate as they showed no flexibility in their positions and only repeated their demands rather than discussing about trade-offs. Thirdly the gap between the developing and the developed countries across virtually all the topics was major obstacles. For instance there was a big difference in what US and EU proposed for agriculture and what the group of 21 developing countries proposed. Fourthly, the procedures were criticized as some claimed that the agenda was too complicated to be fulfilled. In addition to this the Cancun ministerial chairman, Mexico’s Foreign Minister Mr. Luis Ernesto Derbez took the wrong step of ending these discussions rather than trying to divert the discussion to the areas where progress could be achieved.

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This ministerial conference in Cancun however did result in the formation of the Derbez text which basically addressed issues on areas like agriculture, non-agricultural market access, development issues, Singapore issues, and other issues. This Derbez text was widely criticized at the Cancun ministerial conference and so it was not adopted but in the coming years it was seen by various members as the negotiating framework. For instance, on the agricultural proposal that was put forward by US and EU, and the group of 21 developing members, the Derbez text included more Domestic Support Programs than what were proposed by US and EU, it contained the blended tariff approach that was suggested by the proposal put forward by US and EU, but it provided better terms for the developing countries and it also provided the elimination of export subsidies for the products that were of particular interest to the developing countries. For the Singapore issues it included further negotiations on government procurement, and trade facilitation and not on investment and competition.

The negotiations were suspended for the remainder of 2003. These negotiations were again started by the US Trade Representative Mr. Robert Zoellick in 2004 and these negotiations focused on market access and elimination of export subsidies. It was also agreed that Singapore issues could be solved by further negotiations on trade facilitation, and government procurement and by possibly dropping the investment and competition topics. On 31st July 2004, the WTO members approved the framework agreement on the most crucial issue-agriculture and this was seen as a major achievement after the Cancun ministerial conference.

The 6th ministerial conference was held in Hong-Kong on 18th December 2005 in which the final ministerial declaration was put forward and it reflected areas of agreement in agriculture, industrial tariffs, and duty-free and tariff-free access to the Least Developed countries. This ministerial conference was perceived as the last opportunity to settle the key negotiating issues that could produce and agreement by 2007.

Under this ministerial conference deadlines were established that included deadline of April 30, 2005 for modalities in agriculture and Non-Agriculture Marketing Access (NAMA) negotiations. It also included deadlines of July 31, 2006 for submission of tariff schedules for agriculture and NAMA, the submission of revised service offers, the submission of a consolidated text on rules and trade facilitation, and for recommendations to implement ‘ aid for trade’ language in the Hong-Kong declaration.

However the deadlines on the submission of modalities in agriculture and NAMA negotiations could not be met due to a tussle between the US and EU. Thus, the negotiations on these topics were suspended by Mr. Pascal Lamy on July 24, 2006.

These negotiations restarted in full mode on July 31, 2007. Key players known as G4 ( US, EU, India and Brazil) started conducting group meetings with the aim of reaching an impasse on these areas, but still they failed to do so. It was believed that if the players are not able to reach a breakthrough then there will be severe consequences on multilateral trade liberalization like:-

  1. The negotiation of bilateral and regional free trade agreements will accelerate.
  2. There will be increased use of the Dispute Settlement function of WTO which in turn will put stress on WTO as an institution if the decision rendered are not fulfilled or are considered unfair. This might further lead to the loss of agreements already made at the negotiations.
  3. It might also lead to the withdrawal of offers from the table. The development oriented offers like aid for trade, duty-free and quota-free access for least developed countries, etc., will be dropped due to the stalemate in the negotiations.

Till now no agreements have been reached for these two areas – agriculture and NAMA, and the negotiations are being continued on the same.

Significance of the Negotiations

The trade economists argue that these negotiations will have the following significance on world trade and development:-

  1. The reduction in trade barriers will provide a more efficient exchange of products among the countries and will encourage economic growth.
  2. These multilateral trade negotiations are especially beneficial to the developing countries as it will provide them with wider access to markets that in turn will increase world trade and promote economic growth.
  3. It will also increase international cooperation and encourage economic inter-dependence which will further result in further political benefits.

The failure of DOHA round has led to a shift in the trade policy from a global to an approach that focuses on regional and bilateral deals. Some commentators have called for an end of the DOHA initiative and the

Chapter 3: WTO intervention in Nepal and Brazil

  1. NEPAL

Nepal became the member of WTO on 11th September 2003 and it is the only least developed country to have become the member of WTO through full working party negotiation process. It became the 147th member of WTO. The expectations that were associated with the approval of this membership were integrating Nepal’s economy into global economy, securing markets for exports, Maintaining policy stability, strengthening domestic institutions, attracting foreign investments, benefits from free trade policies and enhancing competitive capabilities.

However, Nepal has not been able to reap benefits from WTO membership and assistance, in improving the trade of the country and which further has led to slow development in the country of all the sectors. The major reasons that Nepal has not been able to reap the benefits are the political instability, supply-side constraints and the inability to obtain technical assistance for trade related impediment.

The Nepalese economy is a very poor economy with 40% of 23 million under poverty line and with an annual per capita income of US$240.As a result of which it requires more time to fulfill the commitments put forward by WTO, also some of the commitments required for the fulfillment of the TRIPs agreement, especially those relating to data protection and generic forms of pharmaceuticals, is not possible for Nepal due to lack of human and financial resources.


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