1.

IMPACT OF WTO POLICIES ON DEVELOPING COUNTRIES Globalisation and

development 5th November 2013
2. THE WTO: ITS EVOLUTION The ITO and GATT 1947 Filling the gap left by still born
ITO De facto international trade organisation Success and failure Uruguay Round (19861993): the longest round ever Punta del Este Declaration Proposals for a MTO (1990)
Marrakesh Agreement (1994) WTO since 1.1.1995 2
3. WTO-A BRIEF PROFILE 159 member nations (over 97% of world trade). 3 25 observer
countries.
4. 4 GATT/WTO Membership 180 160 140 120 100 80 60 40 20 19 48 19 53 19 61 19 65 19
70 19 78 19 83 19 90 19 94 19 98 20 02 20 07 0 total membership new members
5. The World Trade Organization (WTO/GATT) 5 Duration of GATT rounds and number of
countries involved 100 To k y o U ru g u a y K ennedy Fourth 40 S econd 60 Third 80 First
num ber of countries at start 120 D illo n 20 0 1945 1955 1965 1975 y ear 1985 1995
6. 6 -December 3-6, 2013 in Bali, Indonesia. -Trade Facilitation -WTO rules -Agriculture
7. 7 VIDEO WTO-an introduction
8. 8 ECONOMIC GLOBALISATION AND WTO LAW Economic Globalisation and
International Trade What is meant by economic globalisation? Gradual integration of
national economies into a global borderless economy Influenced by (and their
democratisation) forces of technology of finance of information Why is it under critique?
Reasons and reactions Globaphiles vs globaphobes Expansion of cross-border
economic interaction: more trade, more welfare Erosion of local control, autonomy and
identity Soverignity WTO as vehicle of freer and open trade? Balancing of interests
necessary Global economic governance
9. 9 ECONOMIC GLOBALISATION AND WTO LAW Figures on trade (last 50 years) show
changes in trade developments General increase of world trade Increase of share of services
in relations to goods decline of trade in Europe raise in Latin-America, Africa and Asia 48
LDC account to only 0.5 percent of world trade China, India and Mexico major suppliers of
cutting/-edge technologies and laborintensive goods Increased trade with companies and
foreign direct investment International trade rules: reasons Restraining
protectionism More security and predictability Governance in globalised economy
10. 10 URUGUAY ROUND REQUIREMENTS: DIFFICULTIES Intellectual Property (TRIPS)
: Time frame-5 years TRIMS (TRIMS) : o Minimum local content and trade balancing ; o
Flexibility to choose investment promotion policies; o Time frame (by 1st Jan 2001) o
Sanitary and phytosanitary measures and technical barriers to trade (SPS) : o No
consultation o Difficulty to meet global standards o Market Access: o Agricultureo Extremely
high tariffs o Escalated tariff on processed foods o Trade distorting subsidies o Quotas o
Textiles and Clothing o Quota (Multi fibre agreement) o Transitional Safeguards o Anti
dumping actions o Discriminatory rule of origin
11. 11 DOHA ROUND Launched in Doha (Qatar) in November 2001 Doha Development
Agenda To postpone the deadline for some developing countries to eliminate export
subsidies and for least-developed countries to provide protection for pharmaceutical patents
and test data, and to tackle problems faced by countries unable to make generic versions of

patented medicines. Areas of Concern: Implementation-related issues and concerns

Agriculture Services TRIPS and issues And public health And geographical indications
And biodiversity Protection of traditional knowledge and folkore
12. 12 SUBJECTS IN DOHA DECLARATION Agriculture (par 13, 14) Services
(par 15) Non-agricultural products (par 16) TRIPS (par 17-19) Relationship between trade
and investment (par 20-22) Interaction between trade and competition policy (par 2325)
Transparency in government procurement (par 26) Trade facilitation (par 27) WTO rules: antidumping and subsidies (par 28) WTO rules: regional trade agreement (par 29) Dispute
Settlement Understanding (par 30) Trade and environment (pars 3133) Electronic
commerce (par 34) Small economies (par 35) Trade, debt and finance (par 36) Trade and
technology transfer (par 37) Technical cooperation and capacity building (pars 3841)
Least-developed countries (pars 42, 43) Special and differential treatment (par 44)
http://www.wto.org/english/tratop_e/dda_e/dohaexplained_e.htm#agriculture
13. 13 WTO Ministerial Meeting in Cancun Developing countries, led by Brazil, China, and
India, were unwilling to move forward without meaningful cuts in agricultural subsidies.
Moreover, they never fully accepted to the idea of the Singapore agenda : --Trade and
Investment --Trade and Competition --Transparency in Government Procurement --Trade
Facilitation. Two issues caused the negotiations to break down, The developed world : 1) The
developed world would not compromise on the issue of agricultural subsidies. 2) The
developed world called for a liberalization of foreign investment rules to improve
transparency, reduce red tape, and open government procurement. 5th Ministerial
Conference of the WTO Cancun, September 9-14, 2003
14. 14 WHY DO DEVELOPED WORLD DOMINATE WTO? Arm Twisting Technique Low
level of financial and knowledge resources among developing economies Negotiations and
decisions are dominated by the developed economies The developing economies are not
consulted/considered while formulating policies WTO remains ineffective in imposing its
disciplines on developed economies
15. With this classification, 2/3 rd of the member countries are developing countries The
groups are: low income: $1,035 or less; lower middle income: $1,036 - $4,085; upper middle
income: $4,086 - $12,615; and high income:$12,616 or more. World Bank Atlas method :
Economies are divided according to 2012 GNI per capita, calculated using the World Bank
Atlas method. WB classifies its member countries on the basis of GNI per capita. 15
WHAT IS A DEVELOPING COUNTRY ? No definitions Countries from WTO on Developing
Members declare themselves They are challengeable Mostly the standards of World
Bank considered for classification of countries. are There are provisions for special,
differential and more favorable treatment for the developing countries
16. 16 WHY DEVELOPING ECONOMIES ARE TOO SENSITIVE ? Agriculture is the major
source of livelihood Disturbance leads to breaking down of agricultural ecosystem
Unemployment Vicious cycle Poor people are fragile & distress migration followed by
starvation Difficult to revive
17. Technical Assistance and Training Implement technical standards Handle disputes
Support to help them build the infrastructure for WTO work Measures to increase their

trading opportunities Longer time periods to implement agreements and commitments 17

WTO AND DEVELOPING COUNTRIES Over three quarters of WTO members are
developing or least-developed countries WTO agreements contain special provisions for
them
18. The emerging powers gain importance 2/3 of the WTO members are developing
countries18 WHY ARE DEVELOPING COUNTRIES IMPORTANT? Change in the
equilibrium of power in the global economy
19. 19 HOW WTO DEALS WITH DEVELOPING COUNTRIES? In the agreements: more
time , better terms Legal Advice: a secretariat service Gainful opportunities for developing
countries: Fundamental reforms in agricultural trade Phasing out quotas on developing
countries exports of textiles and clothing Reductions in customs duties on industrial
products Expanding the number of products whose customs duty rates are bound under
the WTO, making the rates difficult to raise Phasing out bilateral agreements to restrict
traded quantities of certain goods these grey area measures (the so-called voluntary
export restraints) Tariff peaks (37% Vs 40%) and Tariff escalation Erosion of preferences
The ability to adapt (difficult for lDC)
20. 20 SPECIAL AND DIFFERENTIAL PROVISIONS Longer time periods for implementing
Agreements and commitments, Measures to increase trading opportunities for these
countries, Provisions requiring all WTO members to safeguard the trade interests of
developing countries, Support to help developing countries build the infrastructure for WTO
work, handle disputes, and implement technical standards, and Provisions related to LeastDeveloped country (LDC) Members
21. 21 SPECIAL & DIFFERENTIAL TREATMENT. DO WE NEED IT? Yes ! Lack of
financial & human resources to fulfil their commitments. S & D: o More flexible terms within
specified time limits: for example, longer transition periods, smaller commitments (for
example the commitments on agriculture) o Clauses which say in broad terms that developed
countries should help developing countries in specific areas (such as technology transfer
under intellectual property protection) but without defining exactly what action is needed.
Did S & D yield the desired result? NO.. S & D were usually insufficient and that the broader
requirements of category are too vague and often ignored.
22. Increase in the price of commodities Inefficient Market and global economy22
NEGOTIATIONS COLLAPSE Pro-liberalization lobbies Comfortable with current
regulation The WTO is not useful to liberalize services Tariffs below max
23. 2/3 of the WTO members are developing countries The G-20: joint group with offensive
interests governance problems High Expectations: Development Round and UR
background The emerging powers gain importance GATT Institutional inertia 23
STAGNATED NEGOTIATIONS: STRUCTURAL CAUSES Change in the equilibrium of
power in the global economy
24. 24 Whats at stake? Who wins? Who loses? IMPACT OVER THE INCOME OF A FULL
MERCHANDISE TRADE LIBERALIZATION (NOT SERVICES) BY COUNTRY AND REGION
IN 2015 (COMPARED WITH 2001)
25. 25 WTO: BALANCE AGAINST THE DEVELOPING WORLD Video

26. 26 1. Cotton 2. Agricultural Subsidies 3. Trade Agreements 4. Special Treatment 5.

Medicines 6. Legal Costs 7. Protectionist Economic Policies 8. Natural Disaster 9. Decision
Making 10. Fair Trade http://www.theguardian.com/globaldevelopment/povertymatters/2011/nov/14/wto-fails-developing-countries
27. No Penalisation from WTO on US and other developed countries.
http://www.hindustantimes.com/comment/columns/the-wto-is-destroying-indianfarming/article11137811.aspx Procurement price:10% of the total production, and refrain
from increasing the wheat procurement price in future. Peace Clause (Art 13) : Expired in
2003 Indias subsidies for feeding its hungry are being blamed for distorting trade in
agriculture while the US, which provides six times more subsidies than India for feeding its
hungry, is seen as doing humanitarian service. India has been criticized by WTO for
creating a massive new loophole for potentially unlimited trade-distorting subsidies. Avg
supply of subsidized food-US-358 kg/person/year, India-60. US Domestic Aid in 2012-$100
Bn and India -$20 Bn. Double standard of US. 27
28. 28 IMPACT ON INDUSTRIALIZATION: A POLICY PERSPECTIVE 1. Tariff liberalisation
under NAMA Under the emerging NAMA rules in the Doha round negotiations, developing
countries, with the exception of LDCs, have to reduce their import tariffs on industrial
products and bind tariff rates below a certain ceiling. Developing countries have the option,
however, of applying deeper cuts in tariff lines in exchange for greater flexibilities and vice
versa. Flexibilities are in the form of exempting a certain percentage of sensitive product lines
from tariff cuts as long as their import shares in total NAMA imports do not exceed a certain
threshold. However the exemption of a whole sector from tariff cuts will not be possible. This
implies that nonLDC African countries will have less room for pursuing import-substitution
strategies behind high tariff barriers or through gradual and selective tariff liberalisation. This
is further compounded by the insertion of the "national treatment" principle in WTO laws,
whereby foreign firms and foreign goods are to be granted the same treatment as local firms
and locally produced goods in the country. Developing countries will apply tariff cuts
according to a "Swiss" formula. Countries that apply the deepest tariff cuts will be able to
"make smaller or no cuts in 14% of its most sensitive industrial tariff lines, provided that these
tariff lines do not exceed 16 percent of the total value of its NAMA imports". That country
can also keep "6.5 % of its tariff lines unbound or exclude them from tariff cuts, provided they
do not exceed 7.5% percent of the total value of its NAMA imports" (WTO). LDCs will not
face tariff reductions but will have to raise the percentage of their tariff lines that are bound.
The WTO text mentions that additional flexibilities will be negotiated at a future date for South
Africa, Botswana, Lesotho, Namibia, Swaziland and members of the South African Customs
Union (SACU). According to the WTO, "the tariff reductions will be implemented gradually
over a period of five years for developed members and ten years for developing members,
starting 1 January of the year following the entry into force of the Doha results".
29. 29 THE WTO AND ITS IMPACT ON INDUSTRIALIZATION Proponents of NAMA
reforms argue that, in a low-tariff world, developing countries will benefit in the form of
increased market access for their industrial products to other countries, especially developed
countries. For instance, in developed countries the proportion of industrial imports entering

on a dutyfree basis has jumped over the last fifteen years from 20 % to 44%. However,
critics of NAMA reforms argue that the emerging rules will lead to de-industrialisation in
countries that are in their early stages of industrialisation (Shafaeddin 2006). Furthermore,
they argue that the parameter of interest for developing countries should not be the average
industrial tariff rate imposed by developed countries on imports but the actual rates imposed
by the latter on the exports of interest to developing countries. It is not clear that such rates
have been considerably lowered in return for increased market access. There is also the
fear that NAMA liberalisation will lock poor developing countries into their current or existing
patterns of export specialisation. In order to build dynamic comparative advantage in higher
value-added activities, entrepreneurs need to be rewarded with higher expected returns in
exchange for the higher risks involved in undertaking strategic investments in new industries
and new technologies. However the emerging trade rules will make it harder for developing
countries to turn to selective tariffs and subsidies to provide such returns to their
entrepreneurs (Shafaeddin 2006).
30. 30 THE WTO AND ITS IMPACT ON INDUSTRIALIZATION 2. Subsidies With respect to
the use of subsidies as a tool for promoting industrial development, under WTO rules
subsidies linked to either export performance (export subsidies) or the use of domestic over
imported goods (local content subsidies) are prohibited, except for LDCs and countries with
less than US $1,000 GNI per capita. When linked to export performance, export subsidies
can provide appropriate incentives to domestic firms to invest in building their
competitiveness rather than stay complacent. However, such type of subsidies can no longer
be used. Other types of subsidies, for example production subsidies, are allowed but are now
actionable which means that their use can be challenged if deemed to damage the interests
of other parties. In importcompeting industries with high sunk costs, there may be a case for
subsidizing production by domestic infant firms, albeit temporarily, in order to promote greater
entry and more competition in the long-run. As a result of WTO rules, it is now more difficult
to nurture local infant industries through subsidies.
31. 31 THE WTO AND ITS IMPACT ON INDUSTRIALIZATION 3. Investment measures The
Trade-Related Investment Measures (TRIMs) Agreement under the WTO prohibits countries
from using local content or trade balancing requirements. In addition, as discussed in the
preceding section, countries cannot subsidise firms to favour use of domestic inputs over
imported ones. This means that these industrial policy instruments used by currently
advanced and emerging economies, are no longer available to the non-industrialised
countries. While Brazil for instance was able to use local content requirements to establish a
local auto manufacturing industry, Indonesia had to review the local content provisions of its
National Car Program in 1999 under the WTO (DiCaprio and Gallager, 2006). Under the
TRIMs agreement, countries can no longer use local procurement programs to minimize
import leakage rates, optimize the domestic value-chain and promote the building of
production linkages across sectors in their industrial policy programs. TRIMs also prohibits
the use of performance requirements in FDI policies for the purpose of maximising benefits
from FDI such as promoting use of local industrial products, inserting local enterprises in the
production chain of transnational corporations (TNCs) and facilitating technology transfer to
local suppliers.

32. 32 IMPACT ON INDUSTRIAL SECTOR : SUMMARY Significant reduction in industrial

tariffs Tariff binding (progressively high) De-industrialization phase : as a result of cheaper
imports from developed/industrialised economies Doha round : strong pressures from
developed world for a steep cut on the tariff rates (non linear formula) & almost 100% tariff
binding
33. 33
34. 34 ACTUAL WTO IMPACT ON POLICY SPACE Membership of GATT/WTO has not
had a major impact on bindings or tariffs of developing countries Other sources of tariff and
NTB reforms (unilateral and regional) Very limited use of industrial and export subsidies
Evidence of greater WTO influences on new members (e.g. Saudi Arabia, Vietnam)
Concerns about future tightening and stricter implementation of rules
35. 35 PRE- AND POST REFORM NTBS AND EXCHANGE RATE DISTORTIONS PreReform (1) Country (1) Various years, usually 1980s (2) Various years, usually early 1990s
Source: Dean, Univ Nottingham (1995) Cote dIvoire Ghana Kenya Madagascar Malawi Mali
Nigeria Senegal South Africa Tanzania Uganda Zaire NTB Coverage 38% 100% 71% 100%
100% 58% 100% 55% 100% 100% Black Market Premium (average) 985% 16% 37% 51%
210% 0% 242% 303% 71% Post-Reform (2) NTB Coverage 38% 2% 0% 0% Few 0% 17%
15% 23% 100% 5% 100% Black Market Premium (average) 17% 9% 13% 12% 27% 3%
119% 79% 9%
36. 36 OVERALL ASSESSMENT AND CONCLUSIONS WTO has not significantly affected
developing countries policy space to-date The effects (constraints and enhancements) may
increase in future but scope for phased or gradual affects and differentiation within WTO
rules Many of the key pro-development issues are outside the WTO agenda improving
governance, institutions, human capital and infrastructure