Effect of WTO on International Trade

Liberalisation: A Study

Seminar paper on:

Impact of WTO on liberalised International Trade.

Submitted by:

Name: Swetketu Das

Class: 7th Semester (Honours)

University Roll No. 403/LLBH/101239

University Reg. No. 403-1121-0070-10

Subject: International Trade Economics

Under the guidance of:

Smt. Sangeeta Chatterjee, Asst. Professor at Jogesh

Chandra Chaudhuri Law College

Submitted To:

Jogesh Chandra Chaudhuri Law College

[1]

Effect of WTO on International Trade Liberalization: A study

Abstract

International trade is the exchange of capital goods and services across internationalborders or territories. While international trade has been present throughout much ofhistory, its economic, social and political importance has been on the rise in recentcenturies.The World Trade Organization (WTO) is the only global international organization dealingwith the rules of trade between nations. The goal of WTO is to help producers of goods andservices, exporters, and importers to conduct their business for promoting InternationalTrade. With the passage of time the concept of liberalised international trade emerged inthe world trade arena. International trade liberalisation represents a policy by whichgovernments do not discriminate imports as against exports. Trade liberalisation alsoinvolves removing of trade barriers.The WTO plays a very crucial role in the development of free trade in the world. One ofWTO’s main functions is to promote and support free trade throughout the world throughits multilateral trade agreements. The WTO provides for a forum for negotiatingagreements aimed at reducing obstacles to international trade and ensuring a level playingfield for all, thus contributing to economic growth and development.The objective of this study is to find out effects of WTO on international trade liberalisation.Accordingly the study discusses in detail the concept, origin and history of internationaltrade and WTO. It specially highlights the role of judiciary in this respect. The study dwellsupon the advantages and dis-advantages of WTO in promoting international tradeliberalisation. Finally, the study would like to provide a set of suggestions for the removal ofthe demerits and for the promotion of liberalised international trade.

___________

[2]

Effect of WTO on International Trade Liberalization: A

study

1.Introduction Trade has and always will be a basic human conduct. Every man in

this world is equipped with different kinds of resources and there

is always a demand for the resources that one does not have in his

possession. With this demand came the idea of trade. Form the very

beginning of human civilization men has practiced trade in various

forms and through various means. From the barter system of the pre-

historic times economic transactions have evolved into electronic

medium of the recent times. At first trade was limited within the

community and within the territory of a state. This was mainly due

to the lack of communication facilities needed to break the

geographical barriers of international relationship, i.e., the

relationship between the peoples of different countries, but with

the gradual development in technologies and communication

facilities the geographical barriers that caused hindrances to

trade between nations was successfully eliminated and the whole

concept of international trade came into existence.

International trade is the exchange of capital goods and services

across 1international borders or territories. While international

trade has been present throughout much of history, its economic,

social and political importance has been on the rise in recent

centuries.

The World Trade Organization (WTO) is the only global international

organization dealing with the rules of trade between nations. The

goal of WTO is to help producers of goods and services, exporters,

and importers to conduct their business for promoting International

Trade.[3]

With the passage of time the concept of liberalised international

trade emerged in the world trade arena. International trade

liberalisation represents a policy by which governments do not

discriminate imports as against exports. Trade liberalisation also

involves removing of trade barriers.

The WTO plays a very crucial role in the development of free trade

in the world. One of WTO’s main functions is to promote and support

free trade throughout the world through its multilateral trade

agreements. The WTO provides for a forum for negotiating agreements

aimed at reducing obstacles to international trade and ensuring a

level playing field for all, thus contributing to economic growth

and development.

The objective of this study is to find out effects of WTO on

international trade liberalisation. Accordingly the study discusses

in detail the concept origin and history of international trade and

WTO. It specially highlights the role of judiciary in this respect.

The study dwells upon the advantages and dis-advantages of WTO in

promoting international trade liberalisation. Finally, the study

would like to provide a set of suggestions for the removal of the

demerits and for the promotion of liberalised international trade.

[4]

2. International Trade – Concept, Origin and History

2.1.Concept According to the Encyclopedia international trade means economic

transactions that are made between countries. Among the items

commonly traded are consumer goods, capital goods and raw materials

and food. Other transactions involve services such as travel

services and payments for foreign patents. International trade

transactions are facilitated by international financial payments,

in which the private banking system and the central banks of the

trading nations play an important role.11

International trade is the exchange of capital goods and services

across international borders or territories. In most countries,

such trade represents a significant share of gross domestic product

(GDP). While international trade has been present throughout much

of history, its economic, social and political importance has been

on the rise in recent centuries.

International trade is, in principle, not different from domestic

trade as the motivation and the behaviour of parties involved in a

trade do not change fundamentally regardless of whether trade is

across a border or not. The main difference is that international

trade is typically more costly than domestic trade. The reason is

that a border typically imposes additional costs such as tariffs,

time costs due to border delays and costs associated with country

differences such as language, the legal system or culture.

Another difference between domestic and international trade is

that factors of production such as capital and labour are typically

more mobile within a country than across countries. Thus

international trade is mostly restricted to trade in goods and

1 http://dictionary.reference.com/browse/international trade. Accessed onDecember 19, 2013.

[5]

services, and only to a lesser extent to trade in capital, labour

or other factors of production. Trade in goods and services can

serve as a substitute for trade in factors of production.

International trade is also a branch of economics, which, together

with international finance, forms the larger branch

of international economics. Trading is a value added function of

the economic process of a product finding its market, where

specific risks are to be borne by the trader, affecting the assets

being traded which will be mitigated by performing specific

functions.

2.1.1. Models of International Trade :

The following are the noted models of international trade.2

Adam Smith model :Adam Smith displays trade taking place on the basis of countries

exercising absolute advantage over one another. For example if

France produces 10 units of wine and 4 units of cloth per unit of

labour and England produces 3 units of wine and 7 units of cloth

per unit of labour, France has an absolute advantage in the

production of wine over England and England has an absolute

advantage in the production of cloth over France. Hence according

to this theory France should specialise in the production of wine

and meet its requirement of cloth through import from England and

England on the other hand should specialise in the production of

cloth and obtain its wine from France. Such trade would be mutually

beneficial.

According to Smith, three kinds of advantages accrue to a country

from international trade: (i) productivity gain; (ii) absolute cost

gain; and (iii) vent for surplus gain.3

2 http://en.wikipedia.org/wiki/International_trade#Models. Accessed on December21, 2013

[6]

Ricardian model :

The Ricardian model focuses on comparative advantage, which arises

due to differences in technology or natural resources. The

Ricardian model does not directly consider factor endowments, such

as the relative amounts of labour and capital within a country.

The Ricardian model is based on the following assumptions:

Labour is the only primary input to production

The relative ratios of labour at which the production of one

good can be traded off for another differ between countries

and governments

Heckscher–Ohlin model :

In the early 1900s a theory of international trade was developed by

two Swedish economists, Eli Heckscher and Bertil Ohlin. This theory

has subsequently been known as the Heckscher–Ohlin model (H–O

model). The results of the H–O model are that countries will

produce and export goods that require resources (factors) which are

relatively abundant and import goods that require resources which

are in relative short supply.

In the Heckscher–Ohlin model the pattern of international trade is

determined by differences in factor endowments. It predicts that

countries will export those goods that make intensive use of

locally abundant factors and will import goods that make intensive

use of factors that are locally scarce. Empirical problems with the

H–O model, such as the Leontief paradox, were noted in empirical

tests by Wassily Leontief who found that the United States tended

to export labour-intensive goods despite having an abundance of

capital.4

The Heckscher–Ohlin model makes the following core assumptions:

3 Dr. S. R. Myneni, International Economic Law 11 (Allahabad Law Agency,Faridabad, 3rd edn.,2006, Reprint 2012) 4 Supra Note 2 at p. 2

[7]

Labour and capital flow freely between sectors

The amount of labour and capital in two countries differ

(difference in endowments)

Technology is the same among countries (a long-term

assumption)

Tastes are the same

New Trade Theory :

New Trade Theory tries to explain empirical elements of trade that

comparative advantage-based models above have difficulty with.

These include the fact that most trade is between countries with

similar factor endowment and productivity levels, and the large

amount of multinational production (i.e., foreign direct

investment) that exists. New Trade theories are often based on

assumptions such as monopolistic competition and increasing returns

to scale. One result of these theories is the home-market effect,

which asserts that, if an industry tends to cluster in one location

because of returns to scale and if that industry faces high

transportation costs, the industry will be located in the country

with most of its demand, in order to minimize cost.

Although new trade theory can explain the growing trend of trade

volumes of intermediate goods, Krugman's explanation depends too

much on the strict assumption that all firms are symmetrical,

meaning that they all have the same production coefficients.

Shiozawa, based on much more general model, succeeded in giving a

new explanation on why the traded volume increases for intermediate

goods when the transport cost decreases.5

Gravity Model :

The Gravity model of trade presents a more empirical analysis of

trading patterns. The gravity model, in its basic form, predicts

5 http://en.wikipedia.org/wiki/New_Trade_Theory. Accessed on January 20, 2014[8]

trade based on the distance between countries and the interaction

of the countries' economic sizes. The model mimics the Newtonian

law of gravity which also considers distance and physical size

between two objects. The model has been proven to be empirically

strong through econometric analysis.6

2.2. Origin and History :The barter of goods or services among different peoples is an age-

old practice, probably as old as human history. International

trade, however, refers specifically to an exchange between members

of different nations, and accounts and explanations of such trade

begin (despite fragmentary earlier discussion) only with the rise

of the modern nation-state at the close of the European Middle

Ages. As political thinkers and philosophers began to examine the

nature and function of the nation, trade with other countries

became a particular topic of their inquiry. It is, accordingly, no

surprise to find one of the earliest attempts to describe the

function of international trade within that highly nationalistic

body of thought now known as mercantilism.

Mercantilism was based on the conviction that national interests

are inevitably in conflict—that one nation can increase its trade

only at the expense of other nations. Thus, governments were led to

impose price and wage controls, foster national industries, promote

exports of finished goods and imports of raw materials, while at

the same time limiting the exports of raw materials and the imports

of finished goods. The state endeavoured to provide its citizens

with a monopoly of the resources and trade outlets of its colonies.

A typical illustration of the mercantilist spirit is the English

Navigation Act of 1651 which reserved for the home country the

right to trade with its colonies and prohibited the import of goods

6 http://en.wikipedia.org/wiki/Gravity_model_of_trade. Accessed on January 20,2014

[9]

of non-European origin unless transported in ships flying the

English flag. This law lingered until 1849. A similar policy was

followed in France.7

A strong reaction against mercantilist attitudes began to take

shape toward the middle of the 18th century. In France, the

economists known as Physiocrats demanded liberty of production and

trade. In England, economist Adam Smith demonstrated in his book

The Wealth of Nations (1776) the advantages of removing trade

restrictions. Economists and businessmen voiced their opposition to

excessively high and often prohibitive customs duties and urged the

negotiation of trade agreements with foreign powers. This change in

attitudes led to the signing of a number of agreements embodying

the new liberal ideas about trade, among them the Anglo-French

Treaty of 1786, which ended what had been an economic war between

the two countries.

A triumph for liberal ideas was the Anglo-French trade agreement of

1860, which provided that French protective duties were to be

reduced to a maximum of 25% within five years, with free entry of

all French products except wines into Britain. This agreement was

followed by other European trade pacts.8

A reaction in favour of protection spread throughout the Western

world in the latter part of the 19th century. Germany adopted a

systematically protectionist policy and was soon followed by most

other nations. Shortly after 1860, during the Civil War, the United

States raised its duties sharply; the McKinley Tariff Act of 1890

was ultra-protectionist. The United Kingdom was the only country to

remain faithful to the principles of free trade.

World War I wrought havoc on these orderly trading conditions. By

the end of the hostilities, world trade had been disrupted to a7 http://www.britannica.com/EBchecked/topic/291349/international-trade#toc233686.Accessed on January 18, 2014.8 Ibid.

[10]

degree that made recovery very difficult. The first five years of

the post-war period were marked by the dismantling of wartime

controls. An economic downturn in 1920, followed by the commercial

advantages that accrued to countries whose currencies had

depreciated (as had Germany’s), prompted many countries to impose

new trade restrictions. The resulting protectionist tide engulfed

the world economy, not because policy makers consciously adhered to

any specific theory but because of nationalist ideologies and the

pressure of economic conditions. In an attempt to end the continual

raising of customs barriers, the League of Nations organized the

first World Economic Conference in May 1927. Twenty-nine states,

including the main industrial countries, subscribed to an

international convention that was the most minutely detailed and

balanced multilateral trade agreement approved to date. It was a

precursor of the arrangements made under the General Agreement on

Tariffs and Trade (GATT) of 1947.

However, the 1927 agreement remained practically without effect.

During the Great Depression of the 1930s, unemployment in major

countries reached unprecedented levels and engendered an epidemic

of protectionist measures. Countries attempted to shore up their

balance of payments by raising their customs duties and introducing

a range of import quotas or even import prohibitions, accompanied

by exchange controls.9

From 1933 onward, the recommendations of all the post-war economic

conferences based on the fundamental postulates of economic

liberalism were ignored. The planning of foreign trade came to be

considered a normal function of the state. Mercantilist policies

dominated the world scene until after World War II, when trade

9 Ibid.[11]

agreements and supranational organizations became the chief means

of managing and promoting international trade.10

3. WTO – Conceptual and Historical Perspectives :

3.1.Concept :The World Trade Organization (WTO) is the only global international

organization dealing with the rules of trade between nations. At

its heart are the WTO agreements, negotiated and signed by the bulk

of the world’s trading nations and ratified in their parliaments.

The goal is to help producers of goods and services, exporters, and

importers conduct their business.11

There are a number of ways of looking at the World Trade

Organization. It is an organization for trade opening. It is a

forum for governments to negotiate trade agreements. It is a place

for them to settle trade disputes. It operates a system of trade

rules. Essentially, the WTO is a place where member governments try

to sort out the trade problems they face with each other.12 Its main

function is to ensure that trade flows as smoothly, predictably and

freely as possible.13

The WTO provides a forum for negotiating agreements aimed at

reducing obstacles to international trade and ensuring a level

playing field for all, thus contributing to economic growth and

development. The WTO also provides a legal and institutional

framework for the implementation and monitoring of these

agreements, as well as for settling disputes arising from their

interpretation and application. The current body of trade10 http://www.britannica.com/EBchecked/topic/291349/international-trade/233675/The-new-mercantilism. Accessed on January 15, 2014

11 http://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm. Accessed on January15, 201412 http://www.wto.org/english/thewto_e/whatis_e/who_we_are_e.htm. Accessed onJanuary 15, 201413 http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr00_e.htm. Accessedon January 15, 2014

[12]

agreements comprising the WTO consists of 16 different multilateral

agreements (to which all WTO members are parties) and two different

plurilateral agreements (to which only some WTO members are

parties).

Over the past 60 years, the WTO, which was established in 1995, and

its predecessor organization the GATT have helped to create a

strong and prosperous international trading system, thereby

contributing to unprecedented global economic growth. The WTO

currently has 159 members, of which 117 are developing countries or

separate customs territories. WTO activities are supported by a

Secretariat of some 700 staff, led by the WTO Director-General. The

Secretariat is located in Geneva, Switzerland, and has an annual

budget of approximately CHF 200 million ($180 million,

€130 million). The three official languages of the WTO are English,

French and Spanish.14

The WTO has about 150 members, accounting for about 95% of world trade.

Around 30 others are negotiating membership.

Decisions are made by the entire membership. This is typically by

consensus. A majority vote is also possible but it has never been

used in the WTO, and was extremely rare under the WTO’s

predecessor, GATT. The WTO’s agreements have been ratified in all

members’ parliaments.

The WTO’s top level decision-making body is the Ministerial

Conference which meets at least once every two years.

Below this is the General Council (normally ambassadors and heads

of delegation in Geneva, but sometimes officials sent from members’

capitals) which meets several times a year in the Geneva

headquarters. The General Council also meets as the Trade Policy

Review Body and the Dispute Settlement Body.

14 http://www.wto.org/english/thewto_e/whatis_e/wto_dg_stat_e.htm. Accessed onJanuary 15, 2014

[13]

At the next level, the Goods Council, Services Council and

Intellectual Property (TRIPS) Council report to the General

Council.

Numerous specialized committees, working groups and working

parties deal with the individual agreements and other areas such as

the environment, development, membership applications and regional

trade agreements.

The WTO Secretariat, based in Geneva, has around 600 staff and is

headed by a Director-General. Its annual budget is roughly 160

million Swiss francs. It does not have branch offices outside

Geneva. Since decisions are taken by the members themselves, the

Secretariat does not have the decision-making role which other

international bureaucracies are given.

The Secretariat’s main duties are to supply technical support for

the various councils and committees and the ministerial

conferences, to provide technical assistance for developing

countries, to analyse world trade, and to explain WTO affairs to

the public and media.

The Secretariat also provides some forms of legal assistance in the

dispute settlement process and advises governments wishing to

become members of the WTO.15

3.2.Background :Bretton Woods conference held in 1944 was the starting point for a

new world order. It was envisaged that the new world economic order

would be organised around three international institutions – (i)

The IBRD; (ii) IMF; (iii) ITO. While the first two institutions

came into existence and exist even today, the third institution

15 http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr02_e.htm. Accessedon January 15, 2014

[14]

i.e. ITO never came into existence due to non-ratification by the

U.S.16

As a result of the culmination of Uruguay Round of GATT

negotiations for more than seven years at Morocco on April 15 1994

as many as 125 countries including India agreed to establishment of

WTO. The new WTO which came into existence on January 1, 1995 with

the backing of 85 founding countries including India replaced the

GATT.17 The four day Ministerial Meeting at Morocco culminated in

signing of six documents as part of the Morocco Declaration

including agreements in the establishment of the Preparatory

Committee for the WTO, acceptance of the agreement establishing WTO

as well as the pacts of trade and environment and organisational

and financial consequences following from setting up of WTO. These

agreements led to the replacement of the GATT by WTO. The WTO is

thus the world body to oversee a comprehensive set of rules and

disciplines covering every aspect of world commerce including trade

in services and intellectual property protection. The Morocco

declaration calls for common action on the trade front with no

retaliatory measures till the establishment of WTO in January,

1995.18

4. Trade Liberalisation – Its advantages and dis-advantages

4.1. What is With the increasing trends of globalisation and international trade

the concept of ‘free trade’ or ‘trade liberalisation’ has emerged.

‘Trade liberalisation’ involves removing barriers to trade between

different countries and encouraging ‘free trade’. ‘Free trade’ or

‘trade liberalisation’ is a policy by which governments do not

16 Dr. S. K. Kapoor, International Law & Human Rights 625(Central Law Agency, 18th

edn 2011)17 Id at p. 62618 Id at p. 627

[15]

discriminate against imports or exports. Free trade is exemplified

by the European Union / European Economic Area and the North

American Free Trade Agreement, which have established open markets

with very few restrictions to trade. Most nations are today members

of the World Trade Organization’s (WTO) multilateral trade

agreements. However, most governments still impose some

protectionist policies that are intended to support local

employment, such as applying tariffs to imports or subsidies to

exports. Governments may also restrict free trade to limit exports

of natural resources. Other barriers that may hinder trade include

import quotas, taxes, and non-tariff barriers, such as regulatory

legislation.

One of the main functions of the WTO is to support free trade.

Trade liberalisation generally promotes following features –

Trade of goods without taxes (including tariffs) or other

trade barriers (e.g., quotas on imports or subsidies for

producers).

Trade in services without taxes or other trade barriers.

The absence of "trade-distorting" policies (such as taxes,

subsidies, regulations, or laws) that give some firms,

households, or factors of production an advantage over others.

Unregulated access to markets.

Unregulated access to market information.

Inability of firms to distort markets through government-

imposed monopoly or oligopoly power.

Trade agreements which encourage free trade.

4.2. Advantages :Trade liberalisation allows countries to specialise in producing

the goods and services where they have a comparative advantage

[16]

(produce at lowest opportunity cost). This enables a net gain in

economic welfare.

Trade liberalisation has following advantages -

The theory of comparative advantage - This explains that by

specialising in goods where countries have a lower opportunity

cost; there can be an increase in economic welfare for all

countries. Free trade enables countries to specialise in those

goods where they have a comparative advantage.

Reducing Tariff barriers leads to trade creation - Trade

creation occurs when consumption switches from high cost

producers to low cost producers.

Increased Exports - As well as benefits for consumers importing

goods, firms exporting goods where the country has a comparative

advantage will also see a big improvement in economic welfare.

Lower tariffs on exports will enable a higher quantity of

exports boosting job opportunities and economic growth.

Economies of Scale - If countries can specialise in certain

goods they can benefit from economies of scale and lower average

costs, this is especially true in industries with high fixed

costs or that require high levels of investment. The benefits of

economies of scale will ultimately lead to lower prices for

consumers.

Increased Competition - With more trade domestic firms will face

more competition from abroad therefore there will be more

incentives to cut costs and increase efficiency. It may prevent

domestic monopolies from charging too high prices.

Trade is an engine of growth - World trade has increased by an

average of 7% since the 1945, causing this to be one of the big

contributors to economic growth.

Make use of surplus raw materials - Middle Eastern counties such

as Qatar are very rich in reserves of oil but without trade[17]

there would be not much benefit in having so much oil. Japan on

the other hand has very few raw material without trade it would

be very poor.

Tariffs may encourage inefficiency - If an economy protects its

domestic industry by increasing tariffs industries may not have

any incentives to cut costs.

Even when international trade has the above mentioned advantages

associated with it the critics are keen on finding its drawbacks.

The critics of international trade argue that international trade

is not free from flaws and has severe disadvantages associated with

it.

4.3.Disadvantages :The main problems related with free trade are –

Trade liberalisation often leads to a shift in the balance of an

economy. Some industries grow, some decline. Therefore, there may

often be structural unemployment from certain industries closing.

Trade liberalisation can often be painful in the short run, as

some industries and some workers suffer from the decline in

uncompetitive firms.

Trade liberalisation could lead to greater exploitation of the

environment, e.g. greater production of raw materials, trading

toxic waste to countries with lower environmental laws.

Trade liberalisation may be damaging for developing economies

that cannot compete against free trade. The infant industry

argument suggests that trade protection is justified to help

developing economies to diversify and develop new industries.

Most economies had a period of trade protectionism. It is unfair

to insist that developing economies cannot use some tariff

protectionism.

[18]

Trade liberalisation can give substantial economic benefits.

However, these benefits may not be distributed equally. Also the

success of trade liberalisation depends on how flexible an economy

is. If workers are highly educated and flexible, then it is easier

for an economy to switch the nature of production. But, if there is

inflexible, then structural unemployment may persist for quite a

while.

The other issue for trade liberalisation is that it often benefits

developed countries more than developing economies. There are

strong reasons to allow some tariff protectionism if developing

economies are seeking to diversify out of low income growth

agricultural industries.19

5. Role of Judiciary in the liberalisation of international trade :Dispute settlement is regarded by the WTO as the central pillar of

the multilateral trading system and as a unique contribution to the

stability of the global economy. The Dispute Settlement Body of WTO

is the principle judicial organ in case of disputes relating to

trade between its member countries. WTO members have agree that, if

they believe that fellow members are violating trade rules, they

will use the multilateral system of settlement of disputes instead

of taking actions unilaterally.

The Dispute Settlement Body has over the years played a very

serious role in settling the trend of free trade among its members.

It has delivered some very effective ruling in favour of free trade

all over the world. The following cases deserve a special mention

in this regard. These disputes presented before the WTO’s dispute

settlement system elaborately illustrates the function of the

judiciary in the promotion of free trade among its member nations.

19 http://www.economicshelp.org/blog/glossary/trade-liberalisation. Accessed:December 21, 2013

[19]

(i) Dispute between U.S and China relating to restrictions

imposed by China on export of certain raw materials (DS 394):

On 23 June 2009, the United States requested consultations

with China with respect to China's restraints on the export

from China of various forms of raw materials. The United

States cites 32 measures through which China allegedly imposes

restraints on the exports in question and note that there

appear to be additional unpublished restrictive measures.

The United States considers that China, through these measures

as well as any amendments, replacements, related measures, and

implementing measures, is in violation of:

Articles VIII, X, and XI of the GATT 1994; and Paragraphs 5.1,

5.2, 8.2, and 11.3 of Part I of the Protocol on the Accession

of the People's Republic of China (“Accession Protocol”), as

well as China's obligations under the provisions of paragraph

1.2 of Part I of the Accession Protocol (which incorporates

commitments in paragraphs 83, 84, 162, and 165 of the Report

of the Working Party on the Accession of China).

On 4 November 2009, the United States requested the

establishment of a panel. At its meeting on 19 November 2009,

the DSB deferred the establishment of a panel.

The DSB panel found that the restrictions imposed by China was

irrational and against the WTO rules.

At the DSB meeting on 23 March 2012, China informed the DSB of

its intention to implement the DSB recommendations and

rulings.

At the DSB meeting on 28 January 2013, China reported that on

28 December 2012, the General Administration of Customs of

China had promulgated the 2013 Tariff Implementation Program.

On 31 December 2012, the Ministry of Commerce of China and the

General Administration of Customs of China had jointly[20]

promulgated the 2013 Catalogue of Goods Subject to Export

Licensing Administration. According to the notices, the

application of export duties and export quotas to certain raw

materials had been removed. Both notices had taken effect on 1

January 2013. Through those measures, China had fully

implemented the DSB's recommendations and rulings in these

disputes. 20

(ii) Dispute between U.S and India regarding Additional and

Extra-Additional Duties on Imports from the United States by

India(DS 360):

On 6 March 2007, the United States requested consultations

with India with respect to “additional duties” or “extra

additional duties” that India applies to imports from the

United States, which include (but are not limited to) wines

and distilled products (HS2204, 2205, 2206 and 2208). The

measures include:

Sections 2 and 3, and First Schedule, of the Customs

Tariff Act, 1975 (“basic customs duty”, “additional duty”

and “extra additional duty”);

Section 12 of the Customs Act, 1962 (“basic customs

duty”);  

Customs Notification No. 5/2004 (8 January 2004) (“basic

customs duty” inter alia on spirits);

Customs Notification No. 20/1997 (1 March 1997) (“basic

customs duty” inter alia on wine);

Customs Notification No. 32/2003 (1 March 2003)

(“additional duty” inter alia on wine and spirits);

Customs Notification No. 19/2006 (1 March 2006) (“extra

additional duty” inter alia on wine and spirits)

20 http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds394_e.htm. Accessed onJanuary 19, 2014

[21]

As well as any amendments, related measures or

implementing measures.

The United States claims that the measures are inconsistent

with Articles II:1(a) and (b), and III:2 and III:4 of the GATT

1994.

At its meeting on 20 June 2007, the DSB established a panel.

The Panel report was circulated to Members on 9 June 2008. The

Panel concluded that the United States has failed to establish

that the Additional Duty on alcoholic liquor is inconsistent

with Article II:1(a) or (b) of the GATT 1994 and that it has

also failed to establish that the SUAD is inconsistent with

Article II:1(a) or (b) of the GATT 1994.

In the light of these conclusions, the Panel made no

recommendations under Article 19.1 of the DSU. However, it

offered some concluding remarks. The panel recalled that,

after the establishment of this Panel, India issued new

customs notifications making certain changes to the AD on

alcoholic liquor and the SUAD, “to address concerns raised by

[India's] trading partners”. The Panel noted that, therefore,

its disposition of the US claims under Article II:1(a) and (b)

does not necessarily imply that it would be consistent with

India's WTO obligations for India to withdraw the relevant new

customs notifications or otherwise re-establish the status quo

ante, i.e., the situation as it existed on the date of

establishment of the Panel. By the same token, in making this

point, the panel did not wish to suggest that the entry into

force of the new customs notifications necessarily implies

that the AD on alcoholic liquor, to the extent it still

exists, and the SUAD are WTO-consistent.

The Appellate Body rejected the United States' claim that the

Panel limited the scope of the United States' challenge to the[22]

Additional Duty as imposed only through Customs Notification

32/2003, and the Extra-Additional Duty as imposed only through

Customs Notification 19/2006.

As regards the Panel's findings with respect to the

interpretation of Articles II:1(b) and II:2(a), the Appellate

Body found that the Panel erred in its interpretation that

Article II:1(b) covers only duties or charges that “inherently

discriminate against imports”, that the Panel erred in

interpreting the term “equivalent” in Article II:2(a) as

requiring only a qualitative comparison of the relative

function of a charge and internal tax, thereby incorrectly

excluding quantitative considerations relating to their effect

and amount, and that the Panel also erred in finding that

“consistency with Article III:2” is not a necessary condition

in the application of Article II:2(a). Consequently, the

Appellate Body reversed the Panel's findings that the United

States failed to establish that the Additional Duty and the

Extra-Additional Duty are inconsistent with Articles II:1(a)

and II:1(b) of the GATT 1994.

In view of its findings and conclusions, the Appellate Body

made no recommendation, in this case, to the Dispute

Settlement Body pursuant to Article 19.1 of the DSU.

At its meeting on 17 November 2008, the DSB adopted the

Appellate Body report and the Panel report, as reversed by the

Appellate Body report.21

6. Role of WTO in promoting International Trade Liberalisation :The protectionism which emerged in international trade after the

Second World War gave way to gradual liberalization, comprising

both unilateral liberalization and rules-based multilateral21 http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds360_e.htm. Accessed onJanuary 19, 2014

[23]

liberalization. Globalization is the result of free or less

restricted trading in goods, services, technology, and capital

among various countries. However there are various confronting

issues that restrict the growth of international trade, they are

trade barriers, financial assistance, piracy and more specifically

violation of intellectual property rights. This happens because of

different trading rules, absence of reciprocity, etc. It is here

where WTO provides a global platform to the signatory countries to

meet and discuss their issues and to come down with generally

accepted solutions for smoother transition to greater free trade

regimes. Thus WTO actively contributes for the development of

bilateral agreements on free trade in goods, services and

technology.

WTO is the only international organization dealing with the global

rules of trade between nations. The World Trade Organisation came

into existence with effect from 1-1-1995. The WTO replaced General

Agreement on Tariffs and Trade (GATT).

Its main functions are:

To look after the administration of agreements signed at the

Uruguay Round.

To keep checks on the implementation of tariff cuts and

reduction of non-tariff measures.

To examine foreign trade policies of the member nations, and

to see that such policies are in tune with WTO’s guidelines.

To lay down methods for arriving at a harmonious solution in

case of trade conflicts.

To provide necessary consultancy to the member nations on the

development in the World economy.

To provide a global platform where member nations continuously

negotiate the exchange of trade concessions.

[24]

The resultant outcome is the assurance to the consumers and

producers who know that they can enjoy greater choice of products

and services. At the heart of the system are the WTO’s agreements,

which are ground rules for international commerce and are signed by

the trading nations.

Following are the main principles of the WTO:

Non-discrimination : It implies both foreign and national

companies are treated the same.

Thus all nations should be treated equally in terms of trade.

Reciprocity: Nations should try to provide similar concessions

for each other.

Transparency : Negotiations must be fair and open with rules

equal for all.

Special and differential treatment : It provides that

developing countries may require ‘positive discrimination’

because of historic unequal trade.

These principles of a multilateral trading system as laid down by

the WTO are regarded as essential for the promotion of free trade

among its various member states and with the help of these

principles and objectives the WTO establishes a strong case for

free trade.

Member of WTO have decided to fulfil the goals set out in the

preamble of WTO agreement of conducting trade relations with a view

to raise the standard of living worldwide. The rise in global trade

facilitated by trade liberalisation within the rule-based system

has created more employment opportunities with better payment.

The rapid growth of trade in the past half century has been

responsible for the global raise in incomes in the post WW II era

and the GATT/WTO has played a very crucial role in this expansion

of trade. Globalisation too is in part attributed to WTO which with

[25]

its promotion of more open trade has made it easier for firms to

produce and trade across borders.22

The bare statistics speak of a successful GATT/WTO. The membership

of the Geneva based Organization has increased from less than two

dozen in 1948 to 150 till date, and many more nations have applied

and are waiting for membership. As a result of negotiations since

1948, the average import tariff in the world has come down from 40%

to just 6%. The annual value of global trade in both goods and

services is now more than 15 times what it was in 1948. World trade

was equitable to just 8% of the GDP in 1950; in 1990 the figure was

27%. World exports have grown consistently faster than World GDP.

While trade grew by six per cent every year between 1948 and 1999,

the annual growth of GDP has been just 3.8 per cent.23

6.1.Criticism :The stated aim of WTO is to promote free trade and stimulate

economic growth. The actions and policies of WTO have evoked strong

antipathies. Inter alia the WTO is accused of widening the social

gap between the rich and the poor it claims to be fixing.

According to Martin Khor the WTO does not manage the global economy

impartially, but in its operation has a systematic bias toward rich

countries and multinational corporations harming smaller countries

which have less negotiation power. Some suggested example of this

bias are:

Rich countries are able to maintain high import duties and

quotas in certain products, blocking imports from developing

countries.

The increase in non-tariff barriers such as anti-dumping

measures allowed against developing countries.

22 Supra Note 3 at p. 49623 Ibid.

[26]

The maintenance of high protection of agriculture in developed

countries while developing countries are pressed to open their

market

Khor argues that developing countries have not benefited from the

WTO agreements of the Uruguay Round and therefore the credibility

of the WTO trade system could be eroded.  According to Khor, "one of

the major categories of 'problems of implementation of the Uruguay

Round' is the way the Northern countries have not lived up to the

spirit of their commitments in implementing (or not implementing)

their obligations agreed to in the various Agreements.24

Other critics argue that the issue of labour and environment has

been steadfastly ignored. Steve Charnovitz, former Director of the

Global Environment and Trade Study (GETS), believes that the WTO

should begin to address the link between trade and labour and

environmental concerns. He also argues that in absence of proper

environmental regulation and resource management, increased trade

might cause so much adverse damage that the gains from trade would

be less than the environmental costs.25

Another critic has characterized the “Green room” discussions in

the WTO as unrepresentative and non-inclusive; more active

participants representing more diverse interests and objectives

have complicated WTO decision making and the process of consensus

building has broken down.

The lack of transparency is often seen as a problem for democracy.

Politicians can negotiate for regulations that would not be

possible or accepted in a democratic process in their own nations.

Some countries push for certain regulatory standards in

international bodies and then bring those regulations home under

24 http://www.twnside.org.sg/title/davos2-cn.htm. Accessed on January 20, 201425 http://en.wikipedia.org/wiki/Criticism_of_the_World_Trade_Organization.Accessed on January 20, 2014

[27]

the requirement of harmonization and the guise of multilateralism.

This is often referred to as Policy Laundering.26

7. Suggestions and conclusion: Since its inception the WTO has received appraisal as well as

criticism. Many jurists and economists have critically reviewed the

functioning of the WTO. In this regard the following suggestions

may prove to be useful in enhancing the applicability of the WTO

system for the development of global trade –

i. The WTO is often accused of widening the social gap between

the poor and the rich which it claims to be fixing. In this

regard it may be said that the WTO is member driven

organization. Therefore, the members must put their effort in

making agreements which aims at bringing the poor and rich at

the same level.

ii.It is often said that the WTO does not manage global economy

impartially. It is accused of being biased towards the rich

countries and multinational corporations harming smaller

countries which have less negotiation powers. In this regard

it may be said that the smaller countries must be given more

negotiation powers so that they can be at per with the bigger

economies.

iii. The WTO is accused of promoting free trade at any cost.

In this regard the WTO must give its member countries wide

power to negotiate agreements among them based on their need

and capacity to introduce free trade or lower trade barriers.

iv.According to some critic the issue of labour and environment

is completely ignored in the WTO. The WTO must reorganize

their agreement framework so that these issues receive

priority

26 Ibid.[28]

v. The lack of transparency in the WTO framework is often seen as

a problem for democracy. The WTO must attend this issue by

bringing more transparency in its decision making and dispute

settlement process so that it may be more acceptable to a

greater number of nations.

vi.Anti- dumping measures against developing countries should be

prevented.

vii. Agricultural dependencies of the developing and under-

developed countries on the developed countries should be

checked.

viii. Regulatory framework should be created by the developing

countries to regulate the application of FDI in those

countries so that their national trade should not be

destroyed.

The role of WTO in promoting International Trade Liberalization can

be understood properly after discussing its merits and demerits.

The above stated criticisms of WTO made by various jurists in this

respect have clearly shown the biasness of WTO in favour of rich

and developed countries. The researcher has suggested various

suggestions for prevention of those defects of WTO and for

advancement of Free Trade. Proper implementation of those

suggestions will be helpful for WTO to become a forefather of

liberalized international trade.

To conclude it may be said that although the WTO has been severely

criticized by many jurists due to its partiality towards rich

nations, Non-transparent decision making system and various other

reasons, it is the only organization that is responsible for

promotion of free trade globally which in turn helps in the

development of the global economy by increasing standard of living

and creating new job opportunities and helping the nations in

solving disputes multilaterally and thereby averting the[29]

possibilities of trade war. With a few modifications the WTO shall

prove to be very useful for the global economy in its true sense.

[30]