MODULE-3 TRENDS IN WORLD TRADE, WTO AND DEVELOPING COUNTRIES

A. RECENT TRENDS IN GLOBAL TRADE International trade plays very important role in economic development The global economy has grown continuously since the Second World War. Global growth has been accompanied by rise in global trade and a change in the pattern of trade, which reflects ongoing changes in structure of the global economy. The past few decades have seen important changes in trends and pattern of global trade In recent years, the expansion in trade is mostly in non commodity exports, especially of high-technology products such as computers and electronics. It is also characterized by growing regional concentration and an ongoing shift of technology content. The following trends highlights the changing trends in global trade. 1. Expansion in global trade: World trade has grown steadily since World War II, with the expansion accelerating over the past decade. The world merchandise exports have increased from US $ 3395.4 billion in 1990 to US $ 15763.3 billion in 2008, i.e. by 4.6 times, and it has fallen to US $ 12177.6 billion in 2009 due to financiall crisis. The same trend is seen with respect to developed and developing countries. The merchandise exports of developed countries have risen from US $ 2496.6 billion in 1990 to US $ 9044.7 billion in 2008 i.e. by 3.6 times, but fell to US $ 7019.4 billion in 2009. The merchandise exports of developing countries increased from US $ 793.4 billion in 1990 to US $ 6015.9 billion in 2008 i.e. by 7.6 times, but declined to US $ 4706.7 billion in 2009. This is shown in the following table 1. Table .1 : World Merchandise Exports (US $ billion) Year 1990 1995 2000 2008 2009 World 3395.4 5017.7 6277.2 15763.3 J2177.6 Developed Countries 2496.6 3536.2 4212.4 9044.7 7019.4
Source: WTO 2011

.Developing Countries 793.4 1284.0 1919.1 6015.9 4706.7

The following factors are responsible for expansion in global trade. 1. The rise of emerging market economies (EMEs) as systemically important trading partners. 2. The growing importance of regional trade. 3. The shift of higher technology exports toward dynamic EMEs; (iv) the growing role of global supply chains. 1

4. The rising trade liberalization since the early 1950s. 5. Decline in shipping, transportation and communication costs. 2. Growth in Merchandise trade: During the period 1999-2009, the average annual growth of merchandise trade in volume (real terms) in the world was 9.6 percent. The average annual growth of merchandise trade was below the world average in high income countries (8.1 per cent) and the European Union (9.1 per cent). On the other hand, it was above the world average in low- and middle-income countries (14.6 per cent). China experienced an average annual growth of 21.9 percent in merchandise trade during 1999-2009, while India had 17.2 per cent annual average growth in merchandise trade in the same period. The leading Exporters and Importers in Merchandise trade in 2010 is shown in Table 2. Table 2 : Leading Exporters and Importer in Merchandise Trade in 2010 Value Share (in US $ (%) billion) 1 China 1578 10.4 2 US 1278 8.4 3 Germany 1269 8.3 4 Japan 770 5.1 20 India 216 1.4 Source: World Trade Report 2011, WTO Rank Exporters Rank Importers 1 2 3 4 13 US China Germany Japan India Value (in US $ billion) 1968 1395 1067 693 323 Share (%) 12.8 9.1 6.9 4.5 2.1

If we ignore trade between the 27 European Union members and treat the EU as a single entity, the leading exporters were the European Union (US $ I. 79 trillion, or 15 per cent of the total), China (13 per cent), the United States (II per cent), Japan (6.5 per cent) and the Republic of Korea (4 per cent). The top importers excluding trade within the EU were the European Union (US $ 1.98 trillion or 16.5 per cent of world imports), the United States (16 per cent), China (12 per cent), Japan (6 per cent) and die Republic of Korea (US $ 425 billion, 3.5 per cent). 3. Trade between high income economies and low-and middle income economies: Developing economies are becoming increasingly important in the global trading system. Since the early 1990s trade between high-income economies and low- and middle-income economies has grown faster than trade among high-income economies. The trade among low- and middleincome economies (i.e. developing countries) accounted for about 9.2 % of the world's merchandise trade in 2009, compared with 4.5% in 1996. The share of trade from low- and middle income economies to high-income economies increased from 14.1 per cent in 1996 to 19.7 per cent in 2009.

Trade flows between high-income and low- and middle-income economies reflect the changing mix of exports to and imports from developing economies. While food and primary commodities have continued to fall as a share of high-income economies'- imports, manufactures as a share of goods imports from both low- and middle-income economies have grown. And trade between developing economies has grown substantially over the past decade, a result of their increasing share of world output and liberalization of trade. Low-income economies specialize in labor-intensive sectors, but their share in the global market of labor intensive products is very small. Lower middle income economies provided most of the textiles, clothing, and footwear traded globally in 2009. High-income economies accounted for the majority of trade in agricultural products and manufactured goods. 4. Rising importance of developing countries in global trade: Developing economies are an increasingly important part of the global trading system. Their share of world trade rose from 15 percent in 1990 to 30 percent in 2009. Developing economies' share of world exports is continuing a rising trend from 19 percent in 2000 to 27 percent in 2009. It is observed that developing countries are increasingly becoming an important destination for the exports of developed countries. 5. Trade in services: Trade in services makes up 22 percent of world Trade in 2010, up from 20 percent in 2000. In developing economies the nominal value of trade in services grew 16 percent a year over 200009, doubling the rate of growth over 1990-2000. It has surpassed that of high-income economies, which grew at 11 percent a year over 2000-09. The leading exporters in world trade in commercial services in 2010 are US, Germany, UK and China and the leading importers in world trade in services in 2010 are US followed by Germany, China, and UK. India ranks tenth in exports and 7th in imports. The leading Exporters and Importers in World Trade in Commercial Services in 2010 is shown in Table 3. Table 3 : Leading Exporters and Importer in World Trade in Commercial Services in 2010 Value Share (in US $ (%) billion) 1 US 515 14.1 2 Germany 230 6.3 3 UK 227 _ 6.2 4 China 170 4.6 10 India 110 3.0 Source: World Trade Report 2011, WTO Rank Exporters Rank Importers 1 2 3 4 7 US Germany China UK India Value(in US $ billion) 358 256 192 156 117 Share (%) 10.2 7.3 5.5 4.5 3.3

6. Terms of trade of developing and transition economies: The large terms-of-trade fluctuations of the past few years have had large effects on national income and the balance of trade of many economies. Countries lacking the means (such as adequate foreign-exchange reserves or stabilization funds) to cope with swings of this magnitude tend to suffer adverse long-term growth consequences because of the macroeconomic volatility caused by these shocks. B. TRENDS IN GLOBAL TRADE DURING THE FINANCIAL CRISIS AND THE POST CRISIS The financial crisis that struck high-income economies in 2008 reached low- and middle-income economies in 2009. The low income group countries and developing countries recovered much faster after the financial crisis than the rich and developed countries. The changing trends during the financial crisis and post financial crisis can be discussed as below: World exports of goods and services fell 20 percent, from $ 19.6 trillion in 2008 to $ 15.6 trillion in 2009, more in high-income economies and somewhat less in low- and middleincome economies. Imports of goods and services by high-income economies fell 22 percent, from $ 14.0 trillion in 2008 to $ 10.9 trillion in 2009; imports by low and middle income economies fell 19 percent. World trade had declined by more than 11 per cent in 2009. The global output grew by 3.6 per cent in 2010 and it was accompanied by expansion of the worldwide volume of exports and imports of goods and services. The turnaround in trade took place in mid-2009. The recovery was particularly strong between mid-2009 and mid-2010 when the trade volume increased at an annualized rate of nearly 20 per cent. World trade recorded its largest ever annual increase in 2010 as merchandise exports surged 14.5 percent, Since then, however, world trade growth has lost steam along with the slowdown in the recovery of the world economy. Both trade and output grew faster in developing economies than in developed ones in 2010. Exports in volume terms ( in real terms) were up 13 percent in developed economies while the increase for developing economies was nearly 17 per cent. The difference between trade of developed and developing economies was even greater on the import side, where developed economies' imports rose by 11 per cent compared with 18 per cent in the rest of the world. Developing countries have been leading the recovery in international trade in 2010, in line with the stronger expansion of their economies. By September 2010, the trade volume of this group as a whole had already surpassed the pre-crisis peak of April 2008 by 7 per cent, owing in particular to strong trade growth in developing Asia. At the same time, trade by developed economies was still 9 per cent below the pre-crisis peak. As a result, the 4

developing countries' share in global trade increased from about one third to more than 40 per cent-between 2008 and 2010. World trade in services has been severely hit by the financial and economic crisis. It is presumed to have recovered during 2010.UNCTAD data indicate that the value of international trade in services fell by 12 per cent in. 2009. But it was less than the 23 per cent decline in merchandise trade during the same year. The weaker downturn in services trade during the global crisis could reflect a lesser dependence on intermediate inputs as much as a lesser reliance on trade finance of certain services sectors like communications. During 2009, international trade in services decreased by 13 per cent in developed countries, by 10 per cent in developing countries and by 17 per cent in the economies in transition. The worst performance of the economies in transition reflects a greater contraction in all services sectors, but especially those related to construction, travel and transportation. Primary commodity prices have fluctuated strongly compared with prices of manufactures in 2009 and 2010. As a result, countries specializing in exports of primary commodities and those with high shares of imports of energy, food and industrial raw materials have had large swings in their terms of trade. During 2010, the terms of trade of the fuel exporters and exporters of minerals and mining products improved significantly along with rebounding commodity prices, but remained below the peaks reached in 2008 and 2007, respectively. On the other hand, exporters of manufactures saw part of the gains in their terms of trade. In 2010, exporters of agricultural products experienced an increase in the unit prices of both their exports and imports but, on balance, saw a modest improvement in their terms of trade. The countries that are net food importers and that do not export oil or mining products on a significant scale suffered a slight deterioration in their terms of trade during 2010.. The economies in transition, Africa, Western Asia and Latin America and the Caribbean saw a significant rebound in their terms of trade in 2010 .. They had suffered important losses in 2009 following trends in primary commodity prices. The predominantly manufactured exports in East and South Asia, in contrast, saw stagnant or slightly declining terms of trade in 2010. They had a modest improvement during the global recession in 2009. Similarly, developed countries saw little movement, on average, in their terms of trade. Trade imbalances of leading economies widened in 2010, as exports and imports bounced back from their depressed levels of 2009. However, for most countries the gap between exports and imports was smaller after the crisis than before.

The trade deficit of US for the year 2010 increased 26 per cent compared with 2009. However, the 2010 deficit of roughly US $ 690 billion was 22 per cent less than.the corresponding deficit of US $ 882 billion in 2008. China's merchandise trade surplus for 2010 totalled US $ 183 billion, roughly 7 per cent less than the US $ 196 billion it recorded in 2009, and 39 per cent less than the nearly US $ 300 billion surplus of 2008. The European Union had a trade deficit with the rest of the world of US$ 190 billion in 2010, which was up 26 per cent from 2009 but down 49 per cent from the US$ 375 billion it recorded in 2008. Japan was an exception to the trend towards smaller trade deficits/surpluses after the financial crisis. In 2008 the country recorded a US$ 19 billion surplus of exports over imports, but this nearly quadrupled to US$ 77 billion in 2010. C. CHANGING PATTERNS OF GLOBAL TRADE

The world trade has grown steadily since World War II. As a share of global output, trade is now at almost three times the level in the early 1950s. A large part of it is dlriven by the integration of rapidly growing emerging market economies (EMEs). The expansion in trade is mostly accounted for by the growth in non-commodity exports, especially of high-technology products such as computers and electronics. These developments in global trade are changing the global trade patterns. According to IMF studies, the following patterns in global trade is observed : 1. Emergence of new players in global trade : Emerging market economies have moved from peripheral players to major centers of global trade. In the early 1970s, trade was largely confined to a handful of advanced economies, notably the United States, Germany, arid Japan. They together accounted for more than a third of global trade in the early 1970s. By 1990, the global trading landscape had become more diversified to include several EMEs, especially in East Asia. By 2010, China became the second largest trading partner after the United States, overtaking Germany and Japan. 2. The structure of trade: The structure of trade has been characterized by a rising share of higher technology goods. The contribution of high-technology and medium-high-technology exports such as machinery and transport equipment increased, whereas that of lower technology products such as textiles declined. Technology-intensive export structures generally offer better prospects for future economic growth. Trade in high-technology products tends to grow faster than average, and has larger spillover effects on skills and knowledge intensive activities. 3. Growing Trade Interconnectedness: Growth in trade interconnectedness has increased the cross-border transmission of shocks through the trade channel. The IMF study shows the following important trends underlying the global trade network during 1999 and 2009.

There has been a marked shift in the relative rankings of individual countries, with China moving to first place in 2009 up from ninth in 1999. China has emerged as a major systemically important trading center 'along with the United States, gaining prominence not only in terms of size but also by increasing the number of its significant trading partners. There has been a marked shift in the roles of China and Japan as strategic export destinations, with China surpassing Japan as a more significant regional and. global consumer. European countries have retained their importance as "central" in the global trade network, owing more to their interconnectedness than size.

4. Strong interconnectedness between trade and financial sectors: There is strong overlap between countries with trade and financial sectors of systemic importance. The IMF study shows there is an almost perfect overlap between the top 25 jurisdictions with systemic financial sectors and the top 25 jurisdictions with systemic trade sectors in 2009. The only exceptions are Luxembourg and Ireland, whose systemic importance is limited only to the financial sector, and Malaysia and Thailand, whose systemic importance is limited only to the trade sector. 5. The Growing Role of Global Supply Chains: It has been observed countries that are part of a global supply chain are expected to have a higher share of imported content in their exports because their exports rely on importing intermediate inputs from other supply chain partners. 6. Change in Technology composition of Exporters : Changes in the technology composition of exports confirm the rise of merging markets in global trade in high-technology products. Between 1995 and 2008, the contribution of high-technology exports to overall export growth was more than 30 percent for China, compared with 26 percent for the United States, 17 percent for Germany, and only 11 percent for Japan. However, adjusting exports to exclude foreign content and show more clearly the domestic content of exports yields a somewhat different picture. In (his case the contribution of high-technology exports to overall export growth is now much lower in China (24 percent), whereas that of the United States rises to 29 percent and Germany to 20 percent. 7. Rising uniformity in Exports: Export structures of EMEs are becoming increasingly similar to those of advanced economies. As China and other EMEs increasing their presence in sectors traditionally dominated by advanced countries, the similarity in export structures has increased. This has increased the competitive pressure. 8. The impact of relative price change: The emergence of global supply chains is likely to change the way trade responds to relative price changes. Higher imported content in exports is likely to lower the sensitivity of trade to changes in the exchange rate. For instance an appreciation of the domestic currency against all trading partners implies that while exports become more expensive, imported intermediates also become cheaper, mitigating the impact of relative price changes on trade. Advanced countries whose exports tend to be concentrated in medium-high-technology goods are therefore likely to be more sensitive to relative price changes because of higher domestic value added (DVA), whereas those of EMEs are likely to be less sensitive. 7. Changes in global order: The integration of rapidly growing EMEs is likely to induce a gradual shift in the sources of global demand away from advanced economies to EMEs. Since China has overtaken Japan as the second largest economy in the world in 2010, East Asian 7

countries are likely to emerge as the largest trading bloc by 2015, surpassing NAFTA and the Euro area. The global trade has changed over the past few decades. It has lead to increased interconnectedness and strengthened trade new trade relations. The numbers of new key players has increased, but there has been a shift in their importance in global Trade. The relative importance has changed from advanced economies such as Japan and the United Kingdom to EMEs like China and India The growing role of global supply chains is associated with increased in interconnectedness. There is also strong interconnectedness between trade and financial centers. D.CONTENTIOUS ISSUES On January 1ST 1995 GAAT was transformed into the World Trade Organisation (WTO) This transformation turned GATT from a trade agreement into a membership organization responsible for governing the contract of trade relations among its members. The WTOs work is not confirmed to specific agreements with specific obligations. Member countries also discuss a range of other issue in Ministerial conferences, committees or working groups. Some are old and some are new to the GATT-WTO system. The issues become contentious due to disagreement between, mainly, developed and developing countries. They cover a wide range of subjects including trade and investment, competition policy, transparency in government procurement, trade facilitation, trade and labour standards, trade and environment, and electronic commerce. Some of the issues are discussed below: 1. The Environment: The WTO has no specific agreement dealing with environment However, a number of WTO agreements include provisions dealing with environment concerns. In the recent years there is an increased emphasis on environmental policies. At the end of the Uruguay Round in 1994, trade ministers from participating countries decided to begin a comprehensive work programme on trade and environmental in the WTO. They created the Trade and Environment Committee. This has brought environmental and sustainable development issues into the mainstream of WTO work. When the issue is not covered by an environmental agreement, WTO rules apply. The WTO agreements are interpreted to say two important things. First, trade restrictions cannot be imposed on a product purely because of the way it has been produced. Second, one country cannot reach out beyond its own territory to impose its standards on another. A number of developing countries are worried that certain hazardous or toxic products are being exported to their markets without them being fully informed about the environmental or public health dangers the products may pose. Developing countries want to be fully informed so as to be in a position to decide whether or not to import them. 2. Investment and Competition: The Ministerial Conferences in Singapore in 1996 decided to set up Two Working Groups to look at how trade relates to investment and competition policies. The working groups tasks were analytical and exploratory. They are not to negotiate new rules or commitments without a clear consensus. 8

3. Transparency in Government purchases: The WTO has an Agreement on Government Procurement. It is plurilateral i.e. only some WTO members have signed it so far. The agreement covers such issues as transparency and non-discrimination. The first phase of the groups work was to study transparency in government procurement practices, taking into account national policies. The second phase was to develop elements for inclusion in an agreement. 4. Trade facilitations: Cutting red-tape at the point where goods enter a country and providing easier access to this kind of information are two ways of facilitating trade. The 1966 Singapore Ministerial Conference has instructed the WTO Goods Council to start exploratory and analytical work on the simplification of trade procedures in order to assess the scope of WTO rules in this area. 5. Electronic Commerce: This area of trade involves goods crossing borders electronically. The most obvious examples of products distributed electronically are books, music and videos transmitted down telephone lines or through the internet. The Second Ministerial Conference in Geneva in 1998 urged the WTO General Council to establish a comprehensive work programme to examine all trade-related issues arising from global electronic commerce. The General Council has adopted the plan for this work programme. In the meantime, WTO members have agreed to continue their current practice of not imposing customs duties on electronic transmissions. 6. Labour Standards: This is the most controversial issue discussed so extensively in the WTO. It is concerned with core labour standards, that is, essential standards applied to the way workers are treated. The term covers a wide range of things from use of child labour and forced labour, to the right to organize trade unions and to strike. At the Singapore Conference in 1996, WTO members have identified the International Labour Organization (ILO) as the competent body to deal with labour standards. There is currently no work on the subject in the WTO. The WTO agreements do not deal with any core labour standards. 7. TRIPs: The WTOs Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs) introduced intellectual property rules into the multilateral trading system for the first time. Inspite of its possible benefits, it is generally believed that the short-run impact of the TRIPs agreement on the developing it likely to be negative. Under TRIPs many countries have been seeking grater flexibility and clarity on the interpretation of the Agreement on TRIPs in order to ensure affordable access to essential medicines and life saving drugs, in keeping with the public health concern of developing countries. Developing countries have demanded that the WTO should ensure that the TRIPs Agreement does not undermine the right of the WTO members to formulate their own public health policies and adopt measures for providing affordable access to medicines. The Doha declaration affirms that the TRIPs Agreement can and should be interpreted and implemented 9

in a manner supportive of WTO members right to project public health and in particular to promote access to medicines for all. 8. GATS: The General Agreement on Trade in services (GATs) is the first and only set of multilateral rules governing international trade in services. It was incorporated in response to the huge growth of the services economy over the past 30 years and the greater potential for trading services brought about by the communications revolution. The important controversies attached to GATs are: 1) Positive list does not prevent an increase in restrictions on categories that have not been included. 2) The leeway given to governments to specify different types of restrictions according to modes of supply could create incentives to design restrictions so as to divert 9. TRIMs: The Trade related Investment Measure (TRIMs) Agreement applies only to measure that affect trade in goods. Investment decisions exert indirect influences via the industrialization policy, trade policy, employment policy etc. The Agreement on TRIMs has been criticized for the following reasons; 1) There is no provision in the agreement to deal with the restrictive business practices of foreign investors. 2) The provisions of the TRIMs agreement, when applied to developing countries are likely undermining the strategy of self-reliant growth based on technology, capital goods, etc. While reviewing the implementation of the agreement on TRIMs developed countries are bound to make attempts to extend the frontiers of TRIMs prohibited in the list of the agreement. E. AGRICULTURE AND MARKET ACCESS
INTRODUCTION:

Before the conclusion of the Uruguay Round, multilateral discipline did not govern trade in agricultural products, and the agricultural sector remained one of the most protected in several industrial countries. Farm price supports and quantitative restrictions resulted in the production of large surpluses which were exported with heavy subsidies, thereby depressing international prices. Some developing countries have also pursued distortional policies toward this sector.
AGREEMENT ON AGRICULTURE:

The Uruguay Round Agreement on Agriculture aims to establish a market-oriented agricultural trading system. A reform process should be initiated for this through negotiation of commitments on support and protection and through the establishment of strengthened and more operational rules especially through three types of measures, viz. The elimination of non-tariff border measures such as quantitative restrictions and variables levies, minimum market access commitments, and Reduction of subsidies. 10

There are three types of provisions in the Agreement which are related to agriculture. They are trade in agricultural goods, agricultural policies which have a bearing on trade and patenting of seed plants and micro organisms. The main features of the agreement on agriculture relate to improving transparency and market access, and reducing export subsidies and domestic support. Distinctions are also made between the commitments required of developed and developing countries. A significant achievement of the Uruguay Round is to arrive at an agreement to reduce export subsidies and domestic support to agriculture. The developed countries were expected to reduce the bound tariffs by 24 percent with a minimum reduction of 15 percent for each commodity over a period of 6 years. The developing countries were expected to reduce the bound tariffs by 24 percent with a minimum reduction of 10 percent for each commodity over a period of 10 years. The least developed countries are exempt from any tariff reduction. The obligation of tariffication of NTBs did not apply to restrictions maintained by developing countries having balance of payment difficulties. However they were required to bind their tariffs.
MARKET ACCESS TO AGRICULTURE:

On the market access to Agriculture, the Uruguay Round resulted in a key systemic change: the switch from a situation where a myriad of non-tariff measures impeded agricultural trade flows to a regime of bound tariff-only protection plus reduction commitments. The key aspects of this fundamental change have been to stimulate investment, production and trade in agriculture by (i) (ii) (iii) Making agricultural market access conditions more transparent , predictable and competitive, Establishing or strengthening the link between national and international agricultural markets, and thus Relying more prominently on the market for guiding scarce resources into their most productive uses both within the agricultural sector and economy-wide.

PROVISIONS UNDER WTO FOR MARKET ACCESS TO AGRICULTURE:

1.Only Tariff barrier :In many cases, tariffs were the only form of protection for agricultural products. For many other products, however, market access restrictions involved non-tariff barriers. The Uruguay Round negotiations aimed to remove such barriers. For this purpose, a "tariffication" package was agreed which, amongst other things, provided for the replacement of agriculture-specific non-tariff measures with a tariff which afforded an equivalent level of protection. Following the entry into force of the Agreement on Agriculture, there is now a prohibition on agriculture-specific non-tariff measures, and the tariffs on virtually all agricultural products traded internationally are bound in the WTO. 2. Schedule of tariff concessions : Each WTO Member has a "schedule" of tariff concessions covering all agricultural products. These concessions are an integral part of the results of the Uruguay Round. The schedule sets out for each individual agricultural product, or, in some cases agricultural products defined more generally, the maximum tariff that can be applied on imports into the territory of the Member concerned. The tariffs in the schedules include those that resulted from the tariffication process, which, in many cases, are considerably higher than industrial tariffs, reflecting the incidence of agriculture specific non-tariff measures prior to the 11

WTO. Many developing countries have bound their previously unbound tariffs at "ceiling" levels, i.e. at levels higher than the applied rates prior to the WTO. 3. Minimum access opportunities : As part of the tariffication package, WTO Members were required to maintain, for tariffied products, current import access opportunities at levels corresponding to those existing during the 1986-88 base period. Where such "current" access had been less than 5 per cent of domestic consumption of the product in question in the base period, an (additional) minimum access opportunity had to be opened on a most-favoured-nation basis. This was to ensure that in 1995, current and minimum access opportunities combined represented at least 3 per cent of base period consumption and are progressively expanded to reach 5 per cent of that consumption in the year 2000 (developed country Members) or 2004 (developing country Members), respectively. The current and minimum access opportunities are generally implemented in the form of tariff quotas. In case of minimum access, the applicable duty was required to be low or minimal, low that is either in absolute terms or, at least, in relation to the "normal" ordinary customs duty that applies to any imports outside the tariff quota. 4. The prohibition of non-tariff barrier measures : Article 4.2 of the Agreement on Agriculture prohibits the use of agriculture specific non-tariff measures. Such measures include quantitative import restrictions, variable import levies, minimum import prices, discretionary import licensing procedures, voluntary export restraint agreements and non-tariff measures maintained through state-trading enterprises. All similar border measures other than "normal customs duties" are also no longer permitted. 5. Special treatment :The Agreement on Agriculture contains a "special treatment" clause under which four countries were permitted, subject to strictly circumscribed conditions, to maintain non-tariff border measures on certain products during the period of tariff reductions (with the possibility of extending the special treatment, subject to further negotiations). As one of the conditions, market access in the form of progressively increasing import quotas has to be provided for the products concerned. The products and countries concerned are: rice in the case of Japan, Korea and the Philippines; and cheese and sheep meat in the case of Israel. As of 1 April 1999, Japan has ceased to apply special treatment. 6. The special safeguard provisions: As a third element of the tariffication package, Members have the right to invoke for tariffied products the special safeguard provisions of the Agreement on Agriculture (Article 5), provided that a reservation to this effect ("SSG") appears beside the products concerned in the relevant Member's schedule. The rights to make use of the special safeguard provisions has been reserved by 38 Members, and for a limited number of products in each case. The special safeguard provisions allow the imposition of an additional tariff where certain criteria are met. 7. Notification obligations: The bound agricultural tariffs and the tariff quota commitments are contained in Members' schedules. There is no requirement for Members to notify their tariffs to the Committee on Agriculture. Applied tariffs are, however, to be submitted to other bodies of the WTO, including the Committee on Market Access and in the context of the Trade Policy Review mechanism. Members with tariff quotas and the right to use the special safeguard provisions are required to make both ad hoc and annual notifications to the Committee on Agriculture. At the beginning of the implementation period, an "up-front" notification was due, setting out how each tariff quota is to be administered. 12

IMPACT OF W.T.O. AGREEMENTS ON MARKET ACCESS TO AGRICULTURAL TRADE:

The Agreement on Agriculture (AoA) under W.T.O was expected to liberalise trade in agriculture. Opening up of markets of developed countries by reducing trade barriers would help the developing countries to realize their comparative advantage in agriculture. The following observations can be made in connection with market access to agriculture. Unfortunately the developed countries did not reduce the barriers to the extent that should have been. This prevented the poor nations an access to developed countries market. On the contrary the developing countries opened up their market more than the rich countries. Reduction in support as per W.T.O rules expected to increase and stabilise agricultural prices. However in the post W.T.O era, prices of agricultural products have become very unstable. Liberal trade in food grains was to eliminate problems associated with food security. Unfortunately in the post W.T.O period food security problem has become more serious specially in Sub-Saharan Africa. The developed economies were to allow 3 - 5 percent market access to the imports. Most of these countries are yet to reach the target. Agricultural support provided under the red and amber boxes was expected to be eliminated within a given period. Most of the developed countries have shifted such support measures to the blue box by bringing in some technical changes. This has defeated the very purpose of having an equal level playing field between the rich and poor countries. W.T.O is dominated by the developed countries. With their access to research and information available, they are in a position to bargain and obtain a better deal from other members. The advanced countries, in particular, U.S.A, EU and Japan continue t~ be large subsidisers of agriculture and have failed to come down to the level prescribed by the W.T.O. The IPR (Intellectual Property Rights) granted by the W.T.O enables many MNCs to acquire patent rights on seeds and plants which enable them have a monopoly power. This will restrict the market access to poor farmers from the developing countries Developing countries will find it very difficult to open up their market as expected by the W.T.O as they fear that developed countries may sell their agricultural products at a low price by subsidizing them. Such a situation may create serious economic problems for small and marginal farmers of the poor countries.

CONCLUSION:

Currently the W.T.O negotiations pertaining to agriculture are not making any progress. Developed countries do not show any inclination to reduce the domestic support to their farmers. Their domestic market is still restricted to outsiders. The developing countries fear that the demand made by the developed countries will endanger the food security, livelihood security and rural development of their economies.

13

F. TRADE AND ENVIRONMENTAL ISSUES

INTRODUCTION:

Sustainable development and protection and preservation of the environment are fundamental goals of the WTO. They are enshrined in the Marrakesh Agreement, which established the WTO, and complement the WTOs objective to reduce trade barriers and eliminate discriminatory treatment in international trade relations. While there is no specific agreement dealing with the environment, under WTO rules members can adopt trade-related measures aimed at protecting the environment provided a number of conditions to avoid the misuse of such measures for protectionist ends are fulfilled. The WTO contributes to protection and preservation of the environment through its objective of trade openness, through its rules and enforcement mechanism, through work in different WTO bodies, and through ongoing efforts under the Doha Development Agenda. The Doha Agenda includes specific negotiations on trade and environment and some tasks assigned to the regular Trade and Environment Committee. Sustainable development and environmental protection Allowing for the optimal use of the worlds resources in accordance with the objective of sustainable development and seeking to protect and preserve the environment are fundamental to the WTO. These goals, enshrined in the Preamble of the Marrakesh Agreement, go hand in hand with the WTOs objective to reduce trade barriers and eliminate discriminatory treatment in international trade relations. For WTO members, the aims of upholding and safeguarding an open and non-discriminatory multilateral trading system, on the one hand, and acting for the protection of the environment and the promotion of sustainable development, on the other, can and must be mutually supportive. Trade liberalization and the environment An important element of the WTOs contribution to sustainable development and protection of the environment comes in the form of furthering trade opening in goods and services to promote economic development, and by providing stable and predictable conditions that enhance the possibility of innovation. This promotes the efficient allocation of resources, economic growth and increased income levels that in turn provide additional possibilities for protecting the environment. WTO rules and environmental protection: The commitment of WTO members to sustainable development and the environment can also be seen in WTO rules. In general terms the rules, with their fundamental principles of nondiscrimination, transparency and predictability, help set the framework for members to design and implement measures to address environmental concerns. Moreover, WTO rules, including specialized agreements such as the Agreement on Technical Barriers to trade and the agreement of Sanitary and Phytos sanitary measures , provide scope for environmental objectives to be followed and for necessary trade-related measures to be adopted. WTO rules set up the appropriate balance between the right of members to take regulatory measures, including trade restrictions, to achieve legitimate policy objectives (e.g., protection of human, animal or plant life or health, and natural resources) and the rights of other members under basic trade disciplines. 14

WTO Dispute settlement body and environment related trade measures: Since the entry into force of the WTO in 1995, the Dispute settlement body has to deal with a number of disputes concerning environment-related trade measures. Such measures have sought to achieve a variety of policy objectives. WTO institutions of trade and environment linkages: The WTO also supports sustainable development and the environment through its specialized committees and bodies. One unique institutional venue is the Committee on trade and environment (CTE). As a forum for dialogue on trade and the environment, the Committee is an incubator for ideas on how to move the discussion forward. Already, this is bearing fruit. Some issues first raised in the CTE have become fully-fledged negotiations - for instance, on fisheries subsidies and on the relationship between the WTO and multilateral environmental agreements (MEAs). Other WTO bodies are also important. For example, the committee administering the Technical (which deals with regulations, standards, testing and certification procedures) is where governments share information on actions they are taking and discuss how some environmental regulations may affect trade. International efforts on the environment... Since environmental problems often transcend national borders, the response must involve concerted action at the international level. WTO members have long recognized the need for coherence amongst international institutions in addressing global environmental challenges. The current negotiations on the WTO-MEA relationship provide a unique opportunity for creating positive synergies between the trade and environment agendas at the international level. In addition, there is regular and routine contact between the WTO Secretariat and secretariats of multilateral environmental agreements. The Doha Development Agenda and the environment: The Doha round negotiations gives members a chance to achieve an even more efficient allocation of resources on a global scale through the continued reduction of obstacles to trade. The Round is also an opportunity to pursue win-win-win results for trade, development and the environment. For example, the Doha Round is the first time environmental issues have featured explicitly in the context of a multilateral trade negotiation and the overarching objective is to enhance the mutual supportiveness of trade and environment. Members are working to liberalize trade in goods and services that can benefit the environment. They are also discussing ways to maintain a harmonious co-existence between WTO rules and the specific trade obligations in various agreements that have been negotiated multilaterally to protect the environment. Other parts of the Doha negotiations are also relevant to the environment, for example aspects of the agriculture negotiations and also disciplines on fisheries subsidies. The Doha Development Agenda also has a section specifying the priority items in the CTEs regular work.

Situation after Doha round

Greater market openings for environmental goods and services and enhanced coherence between trade and environment As part of the Doha mandate, the WTO members agreed to negotiate greater market opening in environmental goods and services, the relationship between WTO rules and trade obligations set out in multilateral environmental agreements (MEAs) and on the exchange of information 15

between those institutions. Agreement in these areas would undoubtedly help address climate change. A more open market for environmental goods and services: The elimination or reduction of barriers to trade in this area will benefit the environment by improving countries ability to obtain high quality environmental goods. It will facilitate access to these types of goods and foster a better dissemination of environmental technologies at lower costs. This negotiation will also have a positive impact on climate change by improving access to goods and technologies that can contribute to climate change mitigation. According to a recent World Bank study on trade and climate change, elimination of both tariffs and non-tariff barriers to clean technologies could result in a 14% increase in trade in these products. The goods which fall within a broad range of environmental categories, are air pollution control, renewable energy, waste management and water and wastewater treatment. Some of these products are also relevant to climate change mitigation. They include products generating renewable energy such as wind and hydropower turbines, solar water heaters. Members are also considering issues related to non-tariff barriers, transfer of technology, special and differential treatment. More coherence between trade and environment rules : To bring more coherence between trade and environment rules, members have made a number of proposals highlighting the importance of national coordination between trade and environment experts, particularly in the context of the negotiation and implementation of MEAs. Proposals have also underscored the value of national experience-sharing in this area, which can enhance the mutually supportive relationship of the trade and environment regimes. Better cooperation between the WTO and MEAs: There is a strong support for consolidating some practices and mechanisms for co-operation between the WTO and the MEAs. Concrete suggestions have been made regarding information exchange sessions with MEAs possibly through annual sessions, document exchange and future collaboration in the context of technical assistance and capacity building activities. The proposals set out criteria that could guide WTO committees in their consideration of requests for observer status by MEAs. Fisheries subsidies: Reducing fisheries subsidies is also part of the Doha mandate and could significantly reduce overfishing which fosters species preservation. Members agreed to eliminate subsidies that distort trade and seriously undermine the sustainable exploitation of fish stocks. Members are currently discussing how this reduction could be defined and applied. An agreement would constitute a triple-win for trade, environment and development which is at the centre of this negotiation. G. DISPUTE SETTLEMENT MECHANISM Dispute settlement is the central pillar of the multilateral trading system. The WTOs unique contribution to the stability of the global economy is its dispute settlement mechanism. Without a means of settling disputes, the rules-based system would be less effective because the rulesbased system would be less effective because the rules could not be enforced. The WTOs procedure makes the trading system more secure and predictable. The system is based on clearly defined rules, with timetables for completing a case. The priority is to settle disputes, through consultations if possible. 16

Disputes in the WTO are essentially about broken promises. A dispute arises when one country adopts a trade policy measure or takes some action that one or more fellow WTO members considers to be breaking the WTO agreements, or to be a failure to live up to the obligation. A third group of countries can declare that they have an interest in the case and enjoy some rights. Settling Disputes Settling disputes is the responsibility of the Dispute Settlement Body (the General Council in another guise). The Dispute Settlement Body has the sole authority to establish panels of experts to consider the case, and to accept or reject the panels finding or the results of an appeal. It monitors the implementation of the rulings and recommendations and has the power to authorize retaliation when a country does not comply with a ruling. The dispute settlement involves various stages. First stage: Consultation Before taking any other actions the countries in dispute have to talk to each other to see if they can settle their differences by themselves. Second Stage: The Panel If consultations fail, the complaining country can ask for a panel to be appointed. The country in the dock can block the creation of a panel once, but when the Dispute Settlement Body meets for a second time, the appointment can no longer be blocked. The panels final report should normally be given to the parties to the dispute within 6 months and in case of urgency within 3 months. The agreement describes in some detail how the panels are to work. The main stages are: 1) Before the first hearing: Each side in the dispute presents its case in writing to the panel. 2) First hearing: the case for the complaining country and defence : The complaining country (or countries), the responding country, and those that have announced they have an interest in the dispute, make their case at the panels first hearing. 3) Rebuttals (disapprovals): The countries involved submit written rebuttals and present oral arguments at eh panels second meeting. 4) Experts: If one side raises scientific or other technical matters, the panel may consult experts or appoint an expert review group to prepare and advisory report. 5) First Draft: The panel submits the descriptive (factual and argument) sections of its report to the two sides, giving them two weeks to comment. This report does not include findings and conclusions. 6) Interim Report: The panel then submits an interim report; including its findings and conclusions, to the two sides, giving them one week to ask for a view. 7) Review: The period of review must not exceed two weeks. During that time, the panel may hold additional meetings with the two sides.

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8) Final Report: A final report is submitted to the two sides and three weeks later, it is circulated to all WTO members. If the panel decides that the disputed trade measure does break a WTO agreement or an obligation, it recommends that the measures be made to confirm with WTO rules. The panel may suggest how this could be done. 9) The Report Becomes a Ruling: The report becomes the Dispute Settlement Bodys ruling or recommendation within 60 days unless a consensus rejects it. Both sides can appeal the report (and in some cases both sides do). Third Stage: The Appeals Either side can appeal a panels ruling. Sometimes both sides do so. Appeals have to be based on points of law such as legal interpretation they cannot reexamine evidence or examine new issues. Each appeal is heard by three members of a permanent seven-member Appellate Body set up by the Dispute Settlement Body and broadly representing the range of WTO membership. The appeal can uphold, modify or reverse the panels legal findings and conclusions. Normally appeals should not last more than 60 days, with an absolute maximum of 90 days. The Dispute Settlement Body has to accept or reject the appeals report within 30 days and rejection is only possible by consensus. The Procedure after the case has been decided: If a country has done something wrong, it should swiftly correct its fault. It must state is intension to do so at a Dispute Settlement Body meeting held within 30 days of the reports adoption. It it fails to act within this period it has to enter into negotiations with the complaining country (or countries) in order to determine mutuallyacceptable compensation. If after 20 days, no satisfactory compensation is agreed, the complaining side may ask the Dispute Settlement Body for permission to impose limited trade sanctions against the other side. The Dispute Settlement Body must grant this authorization within 30 days of the expiry of the reasonable period of time unless there is a consensus against the request. In any case, the Dispute Settlement Body monitors how adopted rulings are implemented.

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