The World Trade Organisation (WTO) is a rules-based global trade regulator set up by various governments to administer multilateral trade agreements as well as perform other important functions.
It was not an entirely new organisation because though it was established in 1995, it succeeded the General Agreement on Trade and Tariffs (GATT 1994) which existing between the period of 1948 to 1995.
The WTO which is based in Geneva, Switzerland, boasts 164 member states and headed by Brazilian Roberto Azevedo as the Director-General.
The core objectives of the global trade regulator include:
- Raise the standard of living through trade related activities
- Grow income levels and demand
- Expand production of trade in goods and services
- Secure for developing countries, a share in the growth in international trade in line with economic development.
The WTO serves as a forum for multilateral trade agreements, dispute settlement among member countries, with an oversight responsibility on the various trade policies of members and it has strong cooperation with other international organisations.
This is how the WTO is structured:
- The Ministerial Conference is the highest decision-making body of the organisation; comprised of trade ministers of the various member states.
- General Council comes next and it is responsible for the day-to-day operation. It has various body for dispute settlement and trade policy review.
- Next in line are the Councils; there are separate councils for trade in goods, trade in services and trade-related intellectual property rights.
There are some basic principles that are enshrined in the WTO agreements to promote trade in an equally beneficial manner. Among them include:
- Non-Discrimination: The two basic principles of the WTO to control non-discriminatory trade practices are the Most-Favoured-Nation (MFN) and National Treatment.
The MFN principles states that any favour that is granted to any member country of the organisation must immediately and unconditionally apply to all other members.
The National Treatment is basically to check against discrimination within domestic markets as it states that treatment for imports from WTO member countries should be given the same incentives and favours that are given to domestic like or unlike products.
- Fair treatment: This measure makes provision for certain interventions that ensures a level playing field in WTO trade markets. They include government subsidies which are usually extended to both domestic and foreign goods except in the case of anti-dumping. Subsidies are primarily to give producers and traders a certain level of advantage in a market.
- Transparency: In the interest of business confidence and hassle-free trade within markets, WTO member countries are required to ensure prompt notification of new trade policies and regulations, fair administration of such trade regulations. Specifically, the establishment of enquiry points and other means of communication are necessary.
Despite the above trade facilitating incentives, there are exemptions to the rule where the WTO allows member states to apply some safeguarding interventions as an anti-dumping strategy or to ban harmful products in the interest of national security, in adherence to regional trade agreements and in furtherance of the Enabling Clause of the WTO.
Trade Remedies
The key principle of the WTO is the elimination of discriminatory practices in international trade relations among members, however, the organisation has identified that members may need to take measures which derogate from the principles of non-discrimination in order to counters the effects that certain trade practices of other Members may have on their interests.
In addition to the various derogations from obligations that are permitted by the WTO (e.g. to protect health and safety, for environmental reasons, for national security, etc.), the organisation also recognises that trade itself can cause or exacerbate problems of an economic nature.
A number of general and sector-specific provisions allow members to take certain actions to address these sorts of problems, which actions would be contrary to WTO principles and obligations in the absence of these provisions.
These economic derogations include trade remedies: Anti-dumping, countervailing, and safeguard measures.
Anti-dumping measures: Anti-dumping refers to measures taken to offset, with a border measure, dumping that has been found injurious to the domestic industry.
Dumping is where a producer/exporter exports a product to another country (foreign market) at a price lower than the ‘normal value’ which the producer or exporter normally charges in its own domestic market.
WTO rules do not pass judgement on the practice of dumping. The rules however impose disciplines on anti-dumping measures through GATT Article VI and the Anti-Dumping Agreement which clarifies and expands on Article VI, and the two operate together.
Calculation of Dumping Margin
(𝑁𝑜𝑟𝑚𝑎𝑙 𝑉𝑎𝑙𝑢𝑒−𝐸𝑥𝑝𝑜𝑟𝑡 𝑉𝑎𝑙𝑢𝑒)/ (𝐸𝑥𝑝𝑜𝑟𝑡 𝑉𝑎𝑙𝑢𝑒) 𝑥 100=% 𝑀𝑎𝑟𝑔𝑖𝑛 𝑜𝑓 𝐷𝑢𝑚𝑝𝑖𝑛𝑔
Dumping is established by comparing the ‘normal value’ and the ‘export price’. Generally, the normal value is the price at which the like product is sold for consumption in the market of the exporting country.
The export price is the price at which the exporter sells the product to the importing country.
The dumping margin is usually expressed as a percentage of the export price. For example, if the normal value is US$100, and the export price is US$80, the difference is 20, and the dumping margin would usually be expressed as 25% (i.e., (20 ÷ 80) x 100).
Determination of injury to the domestic industry
The Anti-Dumping Agreement leaves discretion to the investigating authorities as to how the question of injury to the domestic industry is to be analyzed. It sets out a series of mandatory factors to be considered in the analysis of the impact of dumped imports on the domestic industry, including:
- Actual and potential decline in sales, profits, output, market share, productivity, return on investments, or utilization of capacity
- Factors affecting domestic prices
- The magnitude of the margin of dumping
- Actual and potential negative effects on cash flow, inventories employment, wages, growth, ability to raise capital or investments.
Safeguard measures: A safeguard measure refers to the temporary suspension of a multilateral concession (tariff cut, etc.) and other obligations.
A safeguard measure can only be applied where total imports of a given product have increased to such an extent and under such conditions as to cause or threaten to cause serious injury.
Safeguard measures must be applied on Most-Favoured-Nation (MFN) basis to all imports of the products, regardless of source.
Safeguard measures can take a wide range of forms but the most common forms are tariff increases above bound rates, quotas, and tariff-rate quotas.
A safeguard measure can only be applied if it is determined in an investigation, conducted in accordance with the rules set forth in Article XIX of GATT 1994 and the SG Agreement, that imports of a product have increased to such an extent and under such conditions as to cause or threaten to cause serious injury to the domestic industry producing like or directly competitive products.
Safeguard measures are subject to numerical limits on duration, the initial period of application cannot exceed four years. Any extension(s) cannot exceed, in total, an additional four years or six years in the case of developing members applying measures.
Subsidies and countervailing measures: These measures establish rules to regulate the provision of subsidies, and the actions that Members can take in respect of harmful effects caused by other Members’ subsidies.
For a measure to be considered a subsidy for the purposes of the SCM Agreement, it must comprise of three basic elements:
- A financial contribution
- By a government or public body
- Conferring a benefit
The SCM Agreement classifies specific subsidies into two groups: prohibited subsidies and actionable subsidies. There are only two kinds of prohibited subsidies:
- Export subsidies
- Local content or import substitution subsidies.
The SCM Agreement applies not only to industrial products, but to agricultural products as well thus subsidies disciplines and countervailing measures can be invoked in respect of agricultural products.
WTO maintains a database of trade remedy actions by Members regarding anti-dumping, subsidies and countervailing measures, and safeguard measures through the Integrated Trade Intelligence Portal Agreement in respect of those product.
This article is culled from the minutes of a pilot Certificate Training Programme in International Agriculture Trade Policy for Development of Agriculture and Regional Food Markets held at the College of Agriculture (CAGRIC) of the University of Education Winneba, Ashanti Mampong