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Contentious issues of WTO

WTO is the institutional platform for the settlement of trade related issues through discussions and
negotiations. Unlike GATT, WTO is both agreement and intuition to implement trade related rules
and regulations The conversion of GATT into WTO with necessary powers in 1997 was an historical
mile stone in the history of global trade. It is rightly said that GATT with teeth is WTO.. Ever since
its inception, WTO could settle large number of trade related issues. How ever still there are a
number of contentious and disputed issues before the WTO and creating roadblocks. Such issues
have become contentious due to disagreement between members on its interpretation and
implementation. Many WTO members especially developing nations feel that, their voice and
problems in global trade is not addressed properly. Further the WTO members are also totally
divided over some of the issues. Some such serious issuers are

1) Multi fiber agreement: MFA is a major contentious issues at the WTO. During the
Uruguay Round talks, WTO Members signed an Agreement on Textiles and Clothing popularly
known as Multi fiber agreement or ATC. The agreement mandates that WTO members to implement
the ATCs including Minimum Market Access condition over a period of 10 years, starting from
1995. The Agreement on Textiles and Clothing requires the progressive elimination of all
quantitative restrictions in four stages and give market access to textiles.
a) Although, MMA conditions have been adopted, many developed countries still
practice quotas, tariffs and NTBs on textiles and clothing of developing nations.
b) Developing countries also complain that the many developed countries still do
not meet the minimum requirements of the ATC.

2) Agriculture Subsidies: Agriculture subsidies is another serious contentious issue .Developed


still continue to provide subsidies including red box subsidies, disturbing the level playing field of
trade. More recently, the World Bank has estimated that 140 million people could be lifted out of
poverty by 2015, if WTO members agree to end subsidies and other NTB barriers to agricultural
trade.
Although Rich countries have agreed in principle to phase out farm subsidies and
Minimum market access conditions , nothing much has been done on this direction.
With respect to subsides to cotton many countries in West Africa, Latin America,
and Asia complain that subsidies stimulate excess production, depress world prices,
and destroy the value of cotton as a cash crop.

3) Labor Standards : This is the most controversial issue before WTO. There is a growing
tendency to link labour standards with global trade. Labour standards are misused as strong trade
barrier.
The Labor standards are those standard to be applied to the way workers are treated. It covers a
wide range of issues, such as Right to Minimum wages ,child labor, forced labor, and the right to
organize trade unions.

WTO does not have any agreements on core labor standards, but follow ILO ( International Labor
organization) standards. The WTO members are deeply divided over launching negotiations on the
above issues.
a) Poor and Developing countries argue , that standards of ILO are distorted and
misused by developed nation as a strong trade barrier.
b) At the same time, MMC and developed nations are against the works right such as
labour union and labour welfare measures , as such measures will cause hurdle to
their investment abroad.
C) Poor countries feels that Some forms of child labor are essential to the survival of
poor families as they depend upon the income generated by every family member.
d) Trade restrictions cannot be imposed on a product purely because of the way it
has been produced.
e) No country cannot reach out beyond its own territory to impose its standards on
another
f) Many developing countries are not ready of making a legal commitment to labor
standards.

4) Trade and Environment : Like labour standard, WTO does not have any specific
agreement on environment. However the concern for the environment is built into the frame work of
WTO agreements. The WTOs environmental mandate has become the subject of intense debate due
to disagreement about the impact of international trade rules on the environment.
a) Developing nations very often link trade and environmental issues to support their
trade barriers . They use environmental protection as defense to support their Non
tariff barrier against the imports from developing nations.
b)Developing countries often find it difficult to implement regulations devised by
developed countries because the standards are too strict.

5) Singapore issues : In addition to the above, few more pending issues were raised in
Singapore meet of WTO. They are called Singapore issues The Singapore issue covers
a) Electronic Commerce: This area of trade involves goods and services crossing borders. ,
electronically through the internet. It is very difficult to bring transparency in E- trading.
WTO members are silent on the issue and have agreed to continue their
current practice of not imposing customs duties on electronic commerce.
b)Transparency in Government Purchases: The WTO has an Agreement on Government
Procurement. The agreement covers issues of transparency and non-discrimination.
However the agreement is pluri lateral. Only few members have signed the
agreement so far. Many members feel that it is an attack on the sovereignty of nation

At present, members are allowed to exempt govt procurement from WTO market
access rules. This state monopoly in trade becomes a de-facto trade barrier.

c) Competition Policy: WTO agreement on Competition policy is a powerful tool to prevent


monopolistic abuse of trade.
However member countries argue for full freedom and flexibility to choose a
competition law which suits them. Such freedom is essential to protect the national
interest in the context of globalization and liberalization

6) Need to deal with Quantitative restrictions : How to deal with NTBs such as voluntary
export restraints, social dumping, anti-dumping and countervailing duties etc is another contentious
issue.
a) In spite of WTO agreements many counties still follow such unethical practices in
trade.

7) Need to deal with Regional trade agreements : Another major challenge which lie ahead
for WTO is how to cope up with challenges of regional trade blocks and their activities that may
come in the way of multilateral trade.
Trade blocs in effect, have become a stumbling bloc rather than building bloc as
claimed by supporters of Regional trade blocs. Global trading scenario is distorted
by presence of large number of trade blocs

8) Measures to be taken for trade Facilitations: : After Doha round of WTO , developing
countries continued to voice concerns that new multilateral obligations on trade facilitation is non
practical and difficult to implement.
Although the trade facilitation or promotion measures of national government
seems to be harmless, the establishment of multilateral rules in this area may go
against the interests of developing countries.

Thus, WTO is plagued with large number of contentious issues. There is an urgent need to address
the issues and iron out differences. The success and survival of WTO depends upon how fast we can
find solutions to the contentious issues.

AOA: Agreement on Agriculture::


WTOs Agreement on Agriculture is an historical agreement in the field of global trade. AOA is an attempt
to bring agriculture in the frame work of WTO. The AOA, for the first time has brought trade in agriculture
in to the ambit of international trade. The basic objective of AOA is to increase market orientation in
agriculture .AoA under W.T.O was expected to liberalize trade in agriculture This agreement tries to protect
the interests of agro based developing countries. Traditionally advanced countries support their agriculture
through subsidies and protective measures such as NTBs They sponsor their agriculture sector through huge
subsidies and NTB measures.. AOA under W.T.O was expected to liberalize trade in agriculture
The basic objective of AOA is to increase market access and market orientation in agriculture . The AOA
focuses on Tariff reduction, tariff binding , market access, Reduction in export and domestic subsidies to
agriculture . Market access or Opening up of markets for agriculture would help the developing countries to
realize their comparative vantage in agriculture. The highlights of AOA are 1) TARIFFICATION 2)
REDUCTION IN EXPORT SUBSIDIES 3) INCREASED MARKET ACCESS

1) TARIFFICATION and TARIFF REDUCTION - bound tariff rate:


a) Tariffication :The AOA make it mandatory to remove all NTB on agricultural trade . Such NTB needs
to be replaced by a single tariff rate, if any barrier is required . This is known as tariffication The new rate
so established after converting NTB into tariff is called the bound tariff rate. The conversion is to worked
out on a formula based on the difference between domestic and external prices existed during period 198688. The bound tariffs can be increased only with proper notification and compensation.
b) Need to rationalize the Bound tariff rates: The AOA also made it mandatory to reduce the bound
tariff rate over a period of time in a phased manner. It was expected that the developed countries would
reduce bound tariff rate by 36 %, in a phased manner over a period of 6 years. Developing countries were
expected to reduce the bound tariffs by 24% within a period of 10 years.

c) The countries facing BOP are exempt from such tariff reduction.. However they were required to
follow bound tariff rate system.

2) EXPORT SUBSIDIES :-Reduction in unwanted subsidies


a) WTO consider export subsides as a game changer in global trade . Subsidies, both export and
domestic are the main cause of distortion in trade in agricultural products. Export subsidies create
distortions in comparative cost advantage of developing nations. Subsidies help exporters to charge or lower
price in the world market, and create artificial advantage .

b) WTO in principle is not against subsidies. WTO objects only those subsidies which distorts the price
and comparative cost advantage of trading members. Accordingly Domestic support to agriculture or
subsidies are categorized into red box, amber box, blue box and green box subsidies. WTO allows certain
category of subsidies, subject to conditions

c) Out right ban on Red box subsidies . A subsidy is treated as red when it distorts the market price of
the product. They artificially distort cost, price and comparative advantage .WTO do not favor any type of
red box subsidy. They are not allowed. d) Amber Box Subsidies are permitted subject to conditions.
Amber box subsidies are not banned, but against which action can be taken. If such subsidies lead to
displace the imports of a like product of another member, they are not allowed. e) Blue Box subsidies are

all in the form of direct payments to farmers. Government assistance to encourage agriculture and rural
development in developing countries are included in this category. Such support must restricted to not more
than 5 % of the value of the product of developed 10 % in the case of developing countries.f) Green Box
Subsidies: Such subsidies do not hurt the interest of other members. They are neither prohibited nor
actionable. Green Box Subsidies have minimal impact on price and hence are permitted. Such measures
include (i) general government assistances in the areas of agricultural research, disease control. (ii) direct
payments to producers in the form of structural adjustment assistance, direct payments under environmental
protection program etc

3) MARKET ACCESS Provisions :

1) Minimum market access commitments from

members :Even after tariff cuts, in many cases tariff rates are kept at very high and prohibitive level which
prevent the entry of many agriculture products into the export market. As a solution to this problem and to
complement the process of tariffication, a system of current and minimum market access commitments was
introduced.

2) imports over and above the quota they are subject to higher rate of tariffs To avoid the adverse
effect of tariffication, the importing countries have given a current market access commitment by
establishing a tariff quota. Up to the quota, imports are allowed at a lower rate and above the quota they are
subject to higher rate of tariffs. Under these provision countries have to make commitment to import a
minimum quantity of even restricted products.

IMPACT OF AAO. ON AGRICULTURAL TRADE AOA of W.T.O was expected to liberalize trade in
agriculture. It is expected to create a level playing role . 1.Developing countries often find it difficult
too follow the regulations devised by AOA: because the standards are too strict & the cost of
implementation is also very difficult for them. . 2. Developed nations still continue with NTBS : It is
the poor nations who have opened the market for farm sector than the rich countries. Developed countries still
support their agriculture through huge subsidies and Other measures Unfortunately the developed countries
did not reduce the barriers to the extent that should have been. This prevented the poor nations access to
developed countries market. 3. Post W.T.O period food security problem has become more serious:
AAO conditions are expected to increase and stabilize agricultural prices. Liberal trade in food grains was to
eliminate problems associated with food security. However during WTO regime global food security problem
has worsened. 4.. Many developed nations still do not follow MMA targets. 5. AOA has defeated
the very purpose of having a level playing field : between the rich & poor countries. Agricultural
support provided under the amber boxes was expected to be eliminated within a given period. Most of the
developed countries have unethically shifted such support measures to the blue box by bringing some
technical changes.. 6. The IPR rights enables many MNCs to acquire patent rights on seeds and
plants and create monopoly power. This deprives the farmers right to produce seeds and breed plants in
their own land.7. Developing countries will find it very difficult to open up their market: as
expected by the W.T.O. Developed countries sell their products in developing countries at a low price by
subsidizing them. Such a situation may create serious economic problems for small marginal farmers in
UDCs
8. Developed countries do not show any interest to reduce the domestic support to

their farmers. At the same time their domestic market are restricted to outsiders by using tariff and
non tariff barriers.