INSTITUTE FOR INTERNATIONAL MANAGEMENT AND TECHNOLOGY, GURGAON

Module: International Business

Project title: Impact of WTO on world trade

SUBMITTED TO: Dr. Durga Mohan

SUBMITTED BY: Simranjeet Singh Roll no. 30612012

INTRODUCTION:
FORMATION OF WTO: 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 worlds trading nations and approved in their parliaments. Its goal is to help the producers, importers and exporters of goods and services, conduct their business. It is an organization for trade opening, a forum for governments of various countries to negotiate trade agreements and a place for them to settle trade disputes. It operates a system of trade rules. Basically, WTO is a place where the member countries try to sort out the trade problems they face with each other. The WTO was made due to the negotiations and everything it does is the result of negotiations. The bulk of the WTOs current work has come from the 198694 negotiations called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs and Trade (GATT). GATT had helped in establishing a strong and prosperous mutual trading system that became more and more liberal through the rounds of trade negotiations. But, by the 1980s the system needed a thorough overhaul. This led to the Uruguay Round, and ultimately to the WTO. The WTO is currently the host to new negotiations, under the Doha Development Agenda launched in 2001. WTO officially started on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. The last GATT round was the Uruguay Round which lasted from 1986 to 1994 and led to the WTOs creation. GATT had chiefly dealt with trade in merchandise goods on the other hand WTO and its agreements cover trade in services and in traded inventions, designs and creations. AGREEMENTS UNDER WTO: The WTO agreements cover goods, services and intellectual property. They include individual countries commitments to lower customs tariffs and other trade barriers. They require governments to make their trade policies transparent by notifying the WTO about laws in force and measures adopted and through regular reports by the secretariat on countries trade policies. These agreements are often called the WTOs trade rules, and the WTO is often described as rules-based, a system based on rules. The table of contents of The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts is a daunting list of about 60 agreements, decisions, annexes and understandings. In fact, the agreements fall into a simple structure with six main parts.

The basic structure of the WTO agreements is:

AGREEMENT ON TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS (TRIP): The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) is an international agreement directed by the WTO that sets down minimum standards for many forms of intellectual property regulation as applied to nationals of other WTO Members. It was negotiated at the end of the Uruguay Round of the GATT in 1994. The TRIPS agreement introduced intellectual property law into the international trading system for the first time and remains the most comprehensive international agreement on intellectual property till date.

The agreement covers five broad issues: 1. how basic principles of the trading system and other international intellectual property agreements should be applied 2. how to give adequate protection to intellectual property rights 3. how countries should enforce those rights adequately in their own territories 4. how to settle disputes on intellectual property between members of the WTO 5. Special transitional arrangements during the period when the new system is being introduced. AGREEMENT ON TRADE-RELATED INVESTMENT MEASURES (TRIMS): Under the Agreement on Trade-Related Investment Measures of the World Trade Organization (WTO), commonly known as the TRIMs Agreement, WTO members have agreed not to apply certain investment measures related to trade in goods that restrict or distort trade. The TRIMs Agreement prohibits certain measures that violate the national treatment and quantitative restrictions requirements of the GATT. Any U.S. company interested in conducting international trade or investment activities in any WTO member country can benefit from this Agreement. (http://tcc.export.gov/Trade_Agreements/Exporters_Guides/List_All_Guides/WTO_subsidies_T RIMs.asp)

AGRICULTURE AGREEMENT: The objective of the Agriculture Agreement is to reform trade in the sector and to make policies more market-oriented. This would improve predictability and security for importing and exporting countries alike. The new rules and commitments apply to: market access: various trade restrictions confronting Import domestic support: subsidies and other programs, including those that raise or guarantee farm gate prices and farmers incomes Export subsidies and other methods used to make Export artificially competitive.

GENERAL AGREEMENT ON TRADE IN SERVICES (GATS): The General Agreement on Trade in Services (GATS) is the first and only set of multilateral rules governing international trade in services. Negotiated in the Uruguay Round, it was developed 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. Services represent the fastest growing sector of the global economy and account for two thirds of global output, one third of global employment and nearly 20% of global trade. The General Agreement on Trade in Services has three elements: The main text containing general obligations and disciplines Annexes dealing with rules for specific sectors and Individual countries specific commitments to provide access to their markets, including indications of where countries are temporarily not applying the most-favored-nation principle of non-discrimination.

DIFFERENCE BETWEEN WTO AND GATT: GATT was a multilateral agreement regulating international trade. It was created in 1948 and lasted until 1993. WTO was formed as a replacement for GATT in 1995 with the purpose of supervising and liberalizing international trade. It has a more permanent structure as compared to GATT. Main differences between GATT and WTO are:

Full Form Year of creation Purpose Nature

GATT General Agreement on Tariffs and Trade 1948 To strengthen international trade GATT was a set of rules, with no institutional foundation, applied on a provisional basis GATT rules applied to trade in goods

WTO World Trade Organization 1995 To govern GATT and international trade practices. WTO is a permanent institution with a permanent framework and its own secretariat WTO Agreement covers trade in goods, trade in services and trade-related aspects of intellectual property rights. WTO has been adopted and accepted by its members as a single undertaking. The agreements which constitute the WTO are all multilateral, and therefore involve commitments for the entire membership of the organization.

Scope

Approach

GATT was a multilateral instrument, a series of new agreements were adopted during the Tokyo Round on a selective-basis, causing a fragmentation of the multilateral trading system

Dispute settlement

GATT dispute settlement system was slower than present WTO

WTO dispute settlement system has specific time limits and is therefore faster than the GATT system. It operates more automatically ensuring less blockages than in the old GATT

TRADE DATA:
Trade in Commercial services:

Reporter

Flow

Indicator
Commercial services (Services excl. government services) Transportation Travel Communications services Construction Insurance services Financial services Computer and information services Other business services Personal, cultural and recreational services Commercial services (Services excl. government services) Transportation Travel

Partner

1995

2000

2005

2010

2011

2012

World World World World World World World World World

Export Export Export Export Export Export Export Export Export

World World World World World World World World World

1178100 302000 400500

1491000 346400 476200 34300 30200 27700 97600 45700 325800

2512700 569100 700300 59400 56100 49400 180200 106300 608200

3819700 806700 949500 95800 101400 97500 282300 218000 970000

4258300 879300 1066900 106200 110700 98100 316900 247800 1098600

4349900 891900 1110700 111500 113000 100300 303100 262700 1127200

World

Export

World

14700

23400

31500

35900

36400

World World World

Import Import Import

World World World

1195200 364900 379500

1463800 419200 441200

2383700 681500 652000

3613300 980600 859500

4042200 1117700 945300

4152300 1143100 994600

(*All figures are in US dollars) (Stat.wto.org)

Total merchandise trade:

Reporter
World World

Flow
Exports Imports

Indicator
Total merchandise Total merchandise

Partner
World World

1995
5166000 5284000

2000
6459000 6725000

2005
10508000 10870000

2010
15283000 15503000

2011
18319000 18499000

2012
18401000 18601000

(*All figures are in US dollars) (Stat.wto.org)

Merchandise trade by commodity:

Reporter
World World World World

Flow
Exports Exports Exports Exports

Indicator
Agricultural products Fuels and mining products Manufactures Chemicals Machinery and transport equipment Textiles Agricultural products Fuels and mining products Manufactures Chemicals Machinery and transport equipment Textiles

Partner
World World World World

1995
589361 545264 3718846 485518

2000
551074 854909 4690772 586155

2005
852335 1813053 7289125 1104795

2010
1361458 3021302 9986103 1707958

2011
1660517 4076442 11522615 2002934

2012
1656711 4176457 11489647 1956674

World World World World World World

Exports Exports Imports Imports Imports Imports

World World World World World World

1940502 152319 621497 568630 3780177 497938

2632561 154848 596314 908343 4896674 620815

3839458 202839 898531 1862949 7629826 1157865

5092722 252221 1392631 3124773 10385718 1758833

5758613 294953 1704296 4174015 12007543 2064299

5757734 285668 1744583 4245137 11967771 1990115

World World

Imports Imports

World World

1947237 156515

2718929 163840

4004992 214617

5335726 266866

6037914 312080

6017673 302256

(*All figures are in US dollars) (Stat.wto.org)

ANALYSIS:
From the above data we can analyze that there is a continuous increase in the overall world trade since the formation of WTO. Also every sector including agriculture, manufactures, textiles, commercial services, communication services, transportation, computer and insurance services etc. has shown a continuous increase in their imports and exports since 1995. Total merchandise export has shown a growth of 71.92% from 1995 to 2012 and total merchandise import has

shown a growth of 71.59% for the same time span. Commercial services export and import have shown the growth of 72.92% and 71.21% respectively from 1995 to 2012.

REASON FOR INCREASING THE GROWTH RATE OF WORLD TRADE:

World trade has recorded its largest annual increase in 2010 as the merchandise exports flowed 14% which is floated by 3.6% recovery in global output. Both trade and output increased faster in developing countries rather than developed once. The reasons behind this increase are:

The factor that contributed to the exceptionally large 12% fall down in world trade in 2009 may also have helped boost the size of the return in 2010. These include the spread of global supply chain and product composition of trade compared with output. Another reason is the higher prices for primary commodities and extraordinary growth of trade in developing Asia has helped in boosting the combined share of developing economies and the common wealth of independent states in world exports. The WTO agreements cover services, goods, intellectual property. They spell out the permitted exceptions and principles of liberalization. It includes individual countries to lower custom tariffs, duties and other trade barriers, and to keep open services markets. It had also helped in increasing world trade.

CONCLUSION:
The World Trade Organization is the only body making global trade rules with binding effects on its members. It is not only an institution, but also a set of agreements. The WTO was formed and ever since has it performed its functions which are: 1. To oversee implementing and administering WTO agreements 2. To provide a forum for negotiations and 3. To provide a dispute settlement mechanism. From the above study it can be concluded that from the past decade the economy has grown more than 25% in trade volume. WTO helps in improvement in world trade by handling disputes among various countries. Their concern about trade role is to link with smooth transportation services. As trade expands in volume, the number of products is traded in number of companies and countries so there are high chances of disputes arrival. The WTO system helps in resolving these disputes constructively and peacefully. International trade involves countries specialized in importing and exporting goods where they have a comparative advantage of importing goods from their trade countries. It helps promote peace between nations to prove smooth overseas transactions. WTO provides free trade between countries which cut costs of living and gives more choice of good products to countries.

REFERENCE:

Helpman, E and Krugman, P (1985), Market structure and foreign trade, MIT Press, Cambridge, MA. Baier, S L and Bergstrand, H (2001), The growth of world trade: tariffs, transport costs, and income similarity, Journal of International Economics, Vol. 53, pages 127. WTO, (2013), [Online] Cited on 17th November,2013, Available from <URL:http://www.wto.org/english/res_e/statis_e/trade_data_e.htm> WTO, (2010) Trade by sector [Online] Cited on 17th November,2013, Available from <URL:http://www.wto.org/english/res_e/statis_e/chp_4_e.pdf> Export.gov, (2013) , Trade analysis, [Online] Cited on 17th November,2013, Available from <URL:http://export.gov/%5C/tradedata/eg_main_018550.asp> Census, (2013), Foreign Trade [Online] Cited on 17th November,2013, Available <URL:http://www.census.gov/foreign-trade/about/index.html> Census, (2013), Foreign Trade [Online] Cited on 17th November,2013, Available <URL:http://www.census.gov/foreign-trade/about/index.html> Radeinservices.com (2013), Online Cited on 17th November,2013, Available <URL: http://radeinservices.mofcom.gov.cn/en/h/2007-10-23/7295.shtml

Stat.wto.org (2013), [Online] Cited on 17th November,2013, Available http://stat.wto.org/StatisticalProgram/WSDBViewData.aspx?Language=E

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