INTERNATIONAL TRADE LAW

COMPILED BY

EMMANUEL MITENGO
 TABLE OF CONTENTS
1 HISTORICAL BACKGROUND 7
1.1 The General Agreement on Tariffs and Trade (GATT) 1947 8
1.2 Economic systems of trade 9
1.2.1 MERCANTILISM 9
1.2.2 LAISSEZ-FAIRE 14
1.2.3 NATIONAL CONTROL MODEL 18
2 THE GENERAL AGREEMENT ON TARIFFS AND TRADE 24
2.1 Understanding the General Agreement on Tariffs and Trade 25
2.2 Multination’s Negotiations (MTN) 25
2.3 Complete General Agreement on Tariffs and Trade rounds 26
2.4 The significance of the Tokyo round 29
2.4.1 Major agreements reached in the Tokyo round 29
2.4.2 Six major codes for the conduct of international trade 33
2.4.3 Combined effects of agreements on tariffs and non-tariff measures 39
2.4.4 What the Tokyo round did not accomplish 41
2.5 Core principles of the general agreement on tariffs and trade 44
2.5.1 Most Favoured Treatment 44
2.5.2 National treatment 45
2.5.3 General Elimination of Quantitative Restrictions 45
2.5.4 Non-discriminatory Administration of Quantitative Restrictions
46
2.6 General agreement on tariffs and trade procedures 46
2.6.1 Publication and Administration of Trade Regulations 46
2.6.2 Tariff Negotiations 47
2.6.3 Transparency 47
2.6.4 Tariffs preferred 48
2.6.5 Tariff reductions and bindings 48
3 THE WORLD TRADE ORGANIZATION 50
3.1.1 Creating the world trade organization 50
3.1.2 World Trade Organization 1994 51
3.2 Multi-lateral world trade agreements 52
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 3.2.1 Goods 53
3.2.2 Services 58
3.2.3 Intellectual property rights (TRIPS) 59
3.2.4 Dispute settlement (DSU) 60
3.3 World trade organization admission 61
3.4 Principles of the trading system 65
3.5 World Trade Organization Structure 67
3.6 World Trade Organization dispute settlement 70
3.7 Development and trade 78
4 INTERNATIONAL FINANCIAL INSTITUTIONS 80
4.1 INTERNATIONAL MONETARY FUND (IMF) 80
4.1.1 Combating poverty in low-income countries 93
4.1.2 Heavily Indebted Poor Countries (HIPC) Initiative 95
4.1.3 Financial Reporting and Audit Requirements 97
4.2 THE WORLD BANK 103
4.2.1 The World Bank: IBRD and IDA 103
4.2.2 Membership in the world Bank Group 111
4.2.3 Ways of Classifying Countries 112
4.2.4 Regional Groupings 113
4.2.5 How the World Bank operates 119
4.2.6 World Bank Group’s Relationship to the IMF and the United Nations
123
4.3 THE AFRICAN DEVELOPMENT BANK (AFDB) 125
4.3.1 Overview of African Development Bank Group 125
4.3.2 Objectives of African Development Bank 126
4.3.3 Membership of the Group 127
4.3.4 Resources of the African Development Bank 128
4.3.5 The Institutional and management structure 129
4.3.6 Operations, policies, initiatives and achievements 130
4.4 THE WORLD BANK ASSOCIATES 137
4.4.1 INTERNATIONAL DEVELOPMENT ASSOCIATES (IDA) 137
4.4.2 INTERNATIONAL FINANCIAL COOPERATION (IFC) 139

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 4.4.3 THE MULTILATERAL INVESTMENT GUARANTEE AGENCY
(MIGA) 132
5 UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT
(UNCTAD) 135
5.1 Unctad: a brief historical overview 135
5.1.1 Origin of UNCTAD 136
5.1.2 Principal analytical ideas 138
5.1.3 Development strategies 139
5.2 Structure of the unctad 140
5.3 The changing international context surrounding UNCTAD 149
5.4 UNCTAD achievements 164
6 THE AFRICAN CONTINENTAL FREE TRADE AREA 166
6.1 THE AFRICAN TRADE LIBERALISATION FRAMEWORK 166
6.2 The African Union (AU) 167
6.3 The Common Market for Eastern and Southern Africa 174
6.4 The Southern African Development Community (SADC) 181
6.5 The Economic Community of West African States (ECOWAS) 188
6.6 The Community of Sahel-Saharan States (CEN-SAD) 196
6.7 The Economic Community of Central African States (ECCAS) 197
6.8 The Arab Maghreb Union (AMU) 201

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ABBREVIATIONS AND ACRONYMS

AU The African Union

AMU The Arab Maghreb Union

AfDB African Development Bank

APDF Africa Project Development Facility (APDF)

AMSCO African Management Services Company (AMSCO)

AD, A-D Anti-dumping measures

ATC Agreement on Textiles and Clothing

CEN-SAD The Community of Sahel-Saharan States

COMESA The Common Market for Eastern and Southern Africa

CSP Country Strategy Paper

CVD Countervailing duty (subsidies)

DDA Doha Development Agenda

DSB Dispute Settlement Body

DSU Dispute Settlement Understanding

ECOWAS The Economic Community of West African States

EU European Union

ECCAS The Economic Community of Central African States

ECOSOC U.N. Economic and Social Council

EFF Extended Fund Facility

EFM Emergency Financing Mechanism

FTA Free Trade Area

FTZ Free Trade Zone

GATS General Agreement on Trade in Services

GATT General Agreement on Tariffs and Trade

GDP Gross domestic product

HIPC Heavily-Indebted Poor Countries

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ICSID International Centre for the Settlement of Investment Disputes

IBRD International Bank for Reconstruction and Development

IDA International Development Association

IFC International Finance Corporation

ILO International Labour Organization

IMF International Monetary Fund

IMFC International Monetary and Financial Committee

ITO International Trade Organization

LDC Least Developed Countries

MFN Most-favoured-nation

MTN Multilateral trade negotiations

MIGA Multilateral Investment Guarantee Agency

MDRI Multilateral Debt Relief Initiative

NEPAD New Partnership for Africa’s Development

NFT The Nigeria Trust Fund

NRMC Non-African or non-regional member countries

OECD Organization for Economic Cooperation and Development

PTA Preferential Trade Area

RISDP Regional Indicative Strategic Development Plan (RISDP)

RMC Regional Member Countries

SADC Southern Africa Development Community

SIPO Strategic Indicative Plan for the Organ

SPS Sanitary and phytosanitary measures

TBT Technical barriers to trade

TPRB Trade Policy Review Body

TPRM Trade Policy Review Mechanism

TRIMs Trade-related investment measures

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TRIPS Trade-related aspects of intellectual

UN United Nations

UNDP United Nations Development Programme

UNCTAD United Nations Conference on Trade and Development

UNCITRAL United Nations Commission on International Trade Law

UR Uruguay Round

US United States

WAEMU West African Economic and Monetary Union

WBI World Bank Institute

WTO World Trade Organization

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1 HISTORICAL BACKGROUND

Trade between nations and the link between trade and economic growth are
neither recent nor novel developments. The existence of trade routes such as
the Silk Route1 and the Amber Route2 crossing boundaries and continents, is
ample evidence that international trade is not a recent phenomenon. The link
between economic growth and trade was widely realised and exploited.
Between the fifteenth and eighteenth centuries, the Venetians and Genoese
traders with commercial acumen accumulated huge wealth by buying goods
at low prices in one port and selling them at high prices at another. This period
also saw the emergence of a new form of mercantile venture through
corporations. The East India Company established under the Royal Charter in
1600 by Queen Elizabeth I,3 the Dutch East Indies Company4 and the Swedish
East Indies Company are some such examples.

Trade, mainly in spices, silk, opium and saltpetre, between the East and the
West thrived and helped in the economic growth of the European states.
However, during the seventeenth and eighteenth centuries, mercantilism,
which argued for strict regulation that encouraged exports and domestic
manufacture of goods to cheaper imports, had gained ground.

There was, however, strong opposition to mercantilism from Adam Smith

(1723–1790), who put forth his theory (often called the theory of absolute
advantage) establishing that mercantilism would not enable economic growth.
And it is to Adam Smith and his successors, such as David Ricardo (1772–1823),
that the modern free-trade philosophy owes much.

1 Refers to the combination of ancient land and sea routes connecting east, southern and western Asia with
the Mediterranean and north Africa.
2 Refers to the route that connected Europe to Africa and used for the amber trade.
3 This company was also imparted with powers to make laws and tax the locals
4 This was established in 1602 and is often said to be the first multinational company.

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1.1 THE GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) 1947
The General Agreement on Tariffs and Trade (GATT) 1947, borne out of the
cornucopia of horrors that the world witnessed in the 1930s and 1940s,
enshrined the philosophy of free trade using the principles of non-
discrimination 5 (also known as Most Favoured Nation obligation) and the
elimination of quantitative restrictions. This philosophy of free trade continues
to this day in the form of GATT 1994. The gradual growth in international trade
since the 1950s is largely due to the influence of GATT on the world stage, and
it seems that this growth is set to continue. Developing countries like Brazil,
China and India have emerged as key players in the provision of manufactured
goods and services on the international scene and are setting a trend for other
developing nations to follow. The philosophy of free trade, however, has not
gone unchallenged.

Over time, the world has become more aware of the global effects of
environmental degradation and the exploitation of the economically
disadvantaged and the young by commercial enterprises. Social and ethical
issues in the context of trade have taken on new meaning, and non-
governmental organisations have successfully harnessed citizens to question
the role of the World Trade Organization (WTO) and the philosophy of free
trade as enshrined in GATT 1994, so much so that there is widespread
agreement that trade needs to acquire a human face.

Given the plurality of legal systems and the variations in liability schemes,
harmonisation through international conventions is widely seen as the best
option of imparting certainty to the legal questions that arise in the context of
international commercial transactions. International organisations, such as the
United Nations Commission on International Trade Law (UNCITRAL) and the

5 The principle of non-discrimination requires that a contracting party should treat all contracting states
alike so that where a trade advantage has been contracted by one contracting party to another, that
advantage should be granted equally to all other contracting parties

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United Nations Conference on Trade and Development (UNCTAD), took on
the task of addressing various legal aspects affecting an international
commercial contract, such as carriage of goods, sales of goods, agency,
factoring and standby letters of credit using international conventions as the
preferred method for achieving the desired harmonisation

1.2 ECONOMIC SYSTEMS OF TRADE

1.2.1 MERCANTILISM
What is mercantilism?

Mercantilism was an economic system of trade that spanned from

the 16th century to the 18th century. Mercantilism is based on the principle
that the world's wealth was static, and consequently, many European nations
attempted to accumulate the largest possible share of that wealth by
maximizing their exports and by limiting their imports via tariffs.

Notable contemporary writers of treatises on mercantilism, such as Thomas

Mun in England, Jean-Baptiste Colbert in France, and Antonio Serra in Italy-
never, however, used the term themselves. The term was given currency by
Adam Smith in his book ‘Wealth of Nations’ (published in 1776) who was a
strong critic of it.

Salient Features of Mercantilism

1. The primary objective of the principles of mercantilism was to

augment the power, wealth and prosperity of a nation state by
regulating the nation’s economy.

2. It was the economic counterpart of political absolutism.

3. Precious metals, such as gold and silver were deemed indispensable

to a nation’s wealth. If a nation did not possess mines or have access
to it, precious metals should be obtained by trade.

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 4. It was believed that trade balance must be favourable, for example
exports should exceed imports. Since commerce helps a nation to
export surplus goods and bring back bullion, it must be aided.
Merchants must be protected abroad; favourable treaties should be
negotiated and new markets opened up. For distant trade, the nations
must aid and protect chartered companies with monopolies. High
tariffs should be imposed on exports and imports from foreign
countries.

5. It was believed that there was more or less a fixed volume of

international trade and policies of the state should be to get the largest
share of it.

6. Each nation should attempt to be self-sufficient and in order to achieve

it must produce its own manufactured goods and encourage and
develop its industries in a regulated manner.

Mercantilism replaced the feudal economic system in Western Europe. At the

time, England was the epicentre of the British Empire but had relatively few
natural resources. To grow its wealth, England introduced fiscal policies that
discouraged colonists from buying foreign products, while creating
incentives to only buy British goods. For example, the Sugar Act of 1764 raised
duties on foreign refined sugar and molasses imported by the colonies, in an
effort to give British sugar growers in the West Indies a monopoly on the
colonial market.

Similarly, the Navigation Act of 1651 forbade foreign vessels from trading
along the British coast and required colonial exports to first pass through
British control before being redistributed throughout Europe. Programs like
these resulted in a favourable balance of trade that increased Great Britain's
national wealth.

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Under mercantilism, nations frequently engaged their military might to
ensure local markets and supply sources were protected, to support the idea
that a nation's economic health heavily relied on its supply of capital.
Mercantilists also believed that a nation's economic health could be assessed
by its levels of ownership of precious metals, like gold or silver, which tended
to rise with increased new home construction, increased agricultural output,
and a strong merchant fleet to provide additional markets with goods and
raw materials.

British Colonial Mercantilism

The British colonies were subject to the direct and indirect effects of
mercantilist policy at home. Below are several examples:

▪ Controlled production and trade: Mercantilism led to the adoption

of enormous trade restrictions, which stunted the growth and
freedom of colonial businesses.
▪ The expansion of the slave trade: Trade became triangulated
between the British Empire, its colonies, and foreign markets,
fostering the development of the slave trade in many colonies,
including America. The colonies provided rum, cotton, and other
products demanded by African imperialists. In turn, slaves were
returned to America or the West Indies and traded for sugar and
molasses.
▪ Inflation and taxation: The British government demanded that
trades were conducted using gold and silver bullion, ever seeking
a positive balance of trade. The colonies often had
insufficient bullion left over to circulate in their markets, so they
issued paper currency instead. Mismanagement of printed
currency resulted in inflationary periods. Additionally, since Great
Britain was in a near-constant state of war, heavy taxation was

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 needed to prop up its army and navy. The combination of taxes
and inflation caused great colonial discontent.

Free trade and Mercantilism

Free trade provides several advantages over mercantilism for individuals,

businesses, and nations. In a free trade system, individuals benefit from a
greater choice of affordable goods, while mercantilism restricts imports and
reduces the choices available to consumers. Fewer imports mean less
competition and higher prices. While mercantilist countries were almost
constantly engaged in warfare, battling over resources, nations operating
under a free-trade system can prosper by engaging in mutually beneficial
trade relations.

In his seminal book "The Wealth of Nations," legendary economist Adam

Smith argued that free trade enabled businesses to specialize in producing
goods they manufacture most efficiently, leading to higher productivity and
greater economic growth.

Today, mercantilism is deemed outdated. However, barriers to trade still exist

to protect locally entrenched industries. For example, post-World War II, the
United States adopted a protectionist trade policy toward Japan and
negotiated voluntary export restrictions with the Japanese government,
which limited Japanese exports to the United States.

Merchant and Mercantilism

By the early 16th century, European financial theorists understood the

importance of the merchant class in generating wealth. Cities and countries
with goods to sell thrived in the late Middle Ages.

Consequently, many believed the state should franchise out its leading
merchants to create exclusive government-controlled monopolies and cartels,
where governments used regulations, subsidies, and (if needed) military force

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to protect these monopolistic corporations from domestic and foreign
competition. Citizens could invest money in mercantilist corporations, in
exchange for ownership and limited liability in their royal charters. These
citizens were granted "shares" of the company profit, which were, in essence,
the first traded corporate stocks.

The most famous and powerful mercantilist corporations were the British and
Dutch East India companies. For more than 250 years, the British East India
Company maintained the exclusive, royally granted the right to conduct trade
between Britain, India, and China with its trade routes protected by the Royal
Navy.

Effects of Mercantilism
1. Mercantilism gave great impetus to imperialism of this era. Since
colonies were viewed as sources of gold and valuable essential
commodities and market, the nation states were keen to acquire as
many colonies as possible. The European powers, often under the
aegis of monopolistic companies, such as the Dutch East India
Company or the British Hudson Bay Company (Canada), carried out
colonial activities around the globe.
2. Since colonies were regarded as existing for the benefit of their mother
countries, the colonized parts of North America, South America and
Africa were involuntarily involved with mercantilism and were
required to sell raw materials only to their colonizers and purchase
finished goods only from them.
3. Its rigid notions of favourable trade balance often caused commercial
rivalry and even wars between nations. The Anglo-Dutch wars and
Franco-Dutch wars are a case in point.
4. Restrictions on where finished goods could be purchased led in many
cases to burdensome high prices for those goods.

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 5. The constraints of mercantilism caused friction between Britain and
her American colonies and were greatly responsible for out-break of
the American Revolution.
6. Adam Smith, a strong critic of the mercantilist policies, opined that
this type of economy has low rate of growth, the wealth is
concentrated in the hands of few, majority of people have no
development and the economic growth is hampered.

Note: Mercantilism is considered by some scholars to be a precursor to

capitalism since it rationalized economic activity such as profits and losses.

1.2.2 LAISSEZ-FAIRE
What is Laissez-faire?

Laissez-faire is an economic theory from the 18th century that opposed any
government intervention in business affairs. The driving principle behind
laissez-faire, a French term that translates to "leave alone" (literally, "let you
do"), is that the less the government is involved in the economy, the better off
business will be, and by extension, society as a whole.

Laissez-faire economics is a key part of free-market capitalism. Laissez-faire

remains a nebulous term. It has been used in reference to theorists who wish
to restrict government to little more than police functions, as well as theorists
who embrace far more expansive roles in line with those of most modern
democratic states.

It has served as both a regulative ideal and the foundation for an economic
worldview; as an expansive moral doctrine founded on an ethos of
productivity and as a narrowly economic doctrine focused on the
accumulation of wealth; as a pessimistic restriction on the exercise of popular
democracy and as an optimistic attempt to expand freedom of choice.

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Advocates have represented it as the absence of intervention, while critics
have seen it as reliant upon the constant exercise of state power. Regardless
of its meaning, justification, and conceptual viability, laissez-faire continues
to carry great weight as a point of reference in debates about political
economy

Understanding laissez-faire

The underlying beliefs that make up the fundamentals of laissez-faire

economics include the idea that economic competition constitutes a "natural
order" that rules the world. Because this natural self-regulation is the best type
of regulation, laissez-faire economists argue that there is no need for business
and industrial affairs to be complicated by government intervention.

As a result, they oppose any sort of federal involvement in the economy,

which includes any type of legislation or oversight; they are against minimum
wages, duties, trade restrictions, and corporate taxes. In fact, laissez-faire
economists see such taxes as a penalty for production.

Laissez-Faire is often associated with Libertarian views on the economy,

where government plays an extremely limited role in the economy. In fact,
one of the key characteristics of Laissez-Faire is that the government should
only be involved with the following three functions:

a. Protecting the national borders via a standing army

b. Protecting private property rights and personal freedom via a police
force and judiciary
c. Producing public goods that serve society (parks, libraries, etc.) that
the market would not be incentivized to produce on its own

HISTORY OF LAISSEZ-FAIRE

Popularized in the mid-1700s, the doctrine of laissez-faire is one of the first

articulated economic theories. It originated with a group known as the
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Physiocrats, who flourished in France from about 1756 to 1778. These thinkers
tried to apply scientific principles and methodology to the study of wealth
and economic production. These "économistes" (as they dubbed themselves)
argued that a free market and free economic competition were extremely
important to the health of a free society. The government should only
intervene in the economy to preserve property, life, and individual freedom;
otherwise, the natural, unchanging laws that govern market forces and
economic processes—what later British economist Adam Smith, dubbed the
"invisible hand" should be allowed to proceed unhindered

Unfortunately, an early effort to test laissez-faire theories did not go well. As

an experiment in 1774, Turgot, Louis XVI's Controller-General of Finances,
abolished all restraints on the heavily controlled grain industry, allowing
imports and exports between provinces to operate as a free trade system. But
when poor harvests caused scarcities, prices shot through the roof; merchants
ended up hoarding supplies or selling grain in strategic areas, even outside
the country for better profit, while thousands of French citizens starved. Riots
ensued for several months. In the middle of 1775, the order was restored, and
with it, government controls over the grain market.

Despite this inauspicious start, laissez-faire practices, developed further by

such British economists as Smith and David Ricardo, ruled during
the Industrial Revolution of the late 18th and early 19th century. And, as its
detractors noted, it did result in unsafe working conditions and large wealth
gaps.

Criticisms of laissez-faire

One of the chief criticisms of laissez-faire is that capitalism as a system has

moral ambiguities built into it: It does not inherently protect the weakest in

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society. While laissez-faire advocates argue that if individuals serve their own
interests first, societal benefits will follow.

Detractors feel laissez-faire actually leads to poverty and economic

imbalances. The idea of letting an economic system run without regulation or
correction in effect dismisses or further victimizes those most in need of
assistance, they say. The 20th-century British economist John Maynard
Keynes was a prominent critic of laissez-faire economics, and he argued that
the question of market solution versus government intervention needed to be
decided on a case-by-case basis.

Advantages and disadvantages of Laissez-Faire

Advantages

a. Government involvement in business is thought to be inefficient and

stifling

b. Encourages self-responsibility and innovation

c. No tax is paid

d. Promotes free markets and competition

Disadvantages

a. Lack of regulations can harm consumers and the environment

b. Can generate negative externalities

c. Less revenue is collected by the government

d. Competition naturally leads to wealth inequality

e. May incentivize bad actors

What is Laissez-Faire capitalism?

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In Laissez-Faire capitalism, companies could operate with a pure profit
motive and not have to worry about government regulation or taxation. This,
of course, could create negative externalities and information asymmetries
that can allow producers to behave as bad actors and get away with it.
Proponents of Laissez-Faire say that costly and exhaustive regulation is not
needed since the market would weed out such bad actors.

In reality, however, bad actors may continue operating for a long while. For
instance, if a vitamin company is filling their capsules with sawdust instead
of herb powder, it may remain unknown without government testing and
regulatory oversight to protect consumers.

1.2.3 National control model

One important question any free trade system must resolve is the manner and
the degree of the regulatory autonomy individual jurisdiction retained despite
a commitment to the free-flow of goods and services. The expansion and
development of international trade is the need of time, but it may affect
adversely if allowed to go unrestricted although it goes around adopting and
open liberal international and impetus is given on the free-flow of international
trade, still some restrictions to some extents are also desirable on the part of
domestic government to save their own economic and social growth from the
adverse effects of unregulated and unrestricted global trade.

Need of International Trade Control

Standards have many roles and functions. Not only do they establish a
common trading language between buyers and sellers, but they also ensure
public safety and the protection of the environment within and outside
national borders. Moreover, in today’s globalized production systems,
standards ensure that parts produced across borders fit and that networks are
compatible. Regulations and standards and the verification of their application
through conformity assessment procedures have, therefore, many benefits.

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However, inappropriate regulations can result in high costs and inefficiencies
in trading partner countries as well as in the domestic economy and have
international repercussions.

International Trade Controls

Many countries regulate international trade transactions, such as imports,

exports and international financial transactions, for a variety of reasons,
including national security and foreign policy. The Government of a specific
country would like to impose restrictions in the following forms or types: -

a) Tariffs Rate or Customs Duties.

b) Quantitative Restrictions.

c) Tariffs Rate or Customs Duties.

d) To protect the interest of the local manufacturer, traders and service

providers, a government of a particular country, may implement
different types of tariff system.

a) Single Column Tariff System

In this system, same or uniform percentage of tariff duty rate is applied or

same amount of duty per unit of measurement is applied for a product
irrespective of the country of origin.

b) Conventional tariff system

Under this system, except a country with whom the bilateral agreement
entered into as a part of specific treaty, a uniform rate is applied on imports
from all other countries. Generally, specific treaties have been entered into
with specific countries due to political, racial or regional ties. Hence the tariffs
rates applicable for import and export with such country are called preferential
tariffs.

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 c) Specific Duty

Whenever the tariff duty is imposed in as amount per units of a goods,

commodities, and services (tonnes, number, skill man hours, etc.), it is known
as specific duty rate. Instead of per unit of measurement, if the duty as
applicable as a percentage of value of the goods, commodities, or services, then
it is known as an ad valorem duty.

d) Compensatory Tariff Rate

Whenever the imported product is available at quite a lower price than the
domestic running price of product, then to protect the interest of domestic
producers, a specific duty is imposed on imported goods. As an action of this,
the imported goods will not be in a position to stand in the domestic market.
Such duty is known as compensatory tariff duty.

e) Countervailing Duty
Importing country will impose additional duty on imported goods if
imported from a particular country, in the case, when an exporting
country supports its goods to be exported through the monetary
support provided in the form of subsidy. Such additional duty is
imposed on the import of such goods by importing country to ensure
the protection to domestic manufactures.
f) Quantitative Restrictions

Government is also imposing the quantitative restrictions in addition to the

tariff controls to protect the interest of the domestic players. Through this, it
limits the physical quantity of goods to be imported during a given period in
a country. To impose the quantitative restrictions, government resorts to the
quota specification, and also the import license. Quota limits the total quantity
of goods to be imported, while import license will limit the imports of an
individual importer.

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Protectionism in the less-developed countries

Much of the industrialization that took place in the late 20th century in some
less-developed countries was characterized by the expansion of import-
competing industries protected by high tariff walls. In many of those countries,
tariffs and various quantitative restrictions on manufactured goods were high,
but the effective rates of protection were often even higher, because the goods
tended to be highly fabricated and the proportion of value added in
production after importation was low. While countries such as Taiwan, Hong
Kong, and South Korea oriented their manufacturing industries mainly
toward export trade, they tended to be exceptional cases.

More commonly, developing nations have mistakenly sought to compete with

foreign-made goods for the domestic market. High protection in these
countries has often contributed to a slowdown in production, while the export
of primary commodities has discouraged expansion of exports of the more
valuable manufactured goods. Although domestic production of nondurable
consumer goods fosters rapid economic growth at an early stage, less-
developed countries have encountered considerable difficulties in producing
more-sophisticated, value-added commodities. They suffer all the
disadvantages of small domestic markets, in addition to a lack of incentives for
technological improvement.

Arguments for and against interference

a. Revenue

Developing nations in particular often lack the institutional machinery needed

for effective imposition of income or corporation taxes (for instance the income
tax). The governments of such nations may then finance their activity by
resorting to tariffs on imported goods, since such levies are relatively easy to
administer. The amount of tax revenue obtainable through tariffs, however, is
always limited. If the government tries to increase its tariff income by imposing

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higher duty rates, this may choke off the flow of imports and so reduce tariff
revenue instead of increasing it.

b. Protection domestic industry

Probably the most common argument for tariff imposition is that particular
domestic industries need tariff protection for survival. Comparative-
advantage theorists will naturally argue that the industry in need of such
protection ought not to survive and that the resources so employed ought to
be transferred to occupations having greater comparative efficiency. The
welfare gain of citizens taken as a whole would more than offset the welfare
loss of those groups affected by import competition; that is, total real national
income would increase.

An opposing argument would be, however, that this welfare gain would be
widely diffused, so that the individual beneficiaries might not be conscious of
any great improvement. The welfare loss, in contrast, would be narrowly and
acutely felt. Although resources can be transferred to other occupations, just
as comparative-advantage theory says, the transfer process is sometimes slow
and painful for those being transferred. For such reasons, comparative-
advantage theorists rarely advocate the immediate removal of all existing
tariffs. They argue instead against further tariff increases—since increases, if
effective, attract still more resources into the wrong occupation—and they
press for gradual reduction of import barriers.

c. Unemployment

Tariffs or quotas are also sometimes proposed as a way to maintain domestic

employment particularly in times of recession. There is, however, near-
unanimity among modern-day economists that proposals to remedy
unemployment by means of tariff increases are misguided. Insofar as a higher
tariff is effective for this purpose, it simply “exports unemployment”; that is,
the rise in domestic employment is matched by a drop in production in some
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foreign country. That other country, moreover, is likely to impose a retaliatory
tariff increase.

Finally, the tariff remedy for unemployment is a poor one because it is usually
ineffective and because more suitable remedies are available. It has come to be
generally recognized that unemployment is far more efficiently dealt with by
the implementation of proper fiscal and monetary policies.

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2 THE GENERAL AGREEMENT ON TARIFFS AND TRADE

General Agreement on Tariffs and Trade participants in the Britton-Woods

meeting in 1944 recognise a post-war need to have a freer trade. However, a
framework for such has already been staked out in Geneva in 1947 in a
document lifted as the “General Agreement on Tariffs and Trade”. The 23
nations participated in the first General Agreement on Tariffs and Trade
session which were Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile,
China, Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg,
Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia, Syria,
South Africa, United Kingdom and the United States. Stringent rules were
adopted where there were no major power parties to utter them. Developing
nations objected to many strict rules, but achieved few successes in drafting
General Agreement on Tariffs and Trade. West Germany and Japan were not
present.

One notable feature was that the United States of America joined the 21 other
countries is signing a protocol of the provision application popularly known
as the General Agreement on Tariffs and Trade. Another notable feature was
the exemptions of existing trade restraints of contracting states. General
Agreement on Tariffs and Trade evolved from its ‘provisional’ status into the
premier international trade body General Agreement on Tariffs and Trade
based in Geneva. It was this organisation that tariffs were steadily reduced
over decade by mean of increased membership.

Today General Agreement on Tariffs and Trade 1947 has been superseded by
substantially similar General Agreement on Tariffs and Trade 1994 agreement
which is part of the World Trade Agreement that took effect in 1995. The World
Trade Organization has taken over from the General Agreement as the basis
for institutional cooperation and dispute settlement on trade matters among

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its members. But the core principles of the GATT are still in place, and the
Uruguay Round package cannot be understood except in relation to them.

2.1 UNDERSTANDING THE GENERAL AGREEMENT ON TARIFFS AND TRADE

The General Agreement on Tariffs and Trade was created to form rules to end
or restrict the most costly and undesirable features of the pre-war protectionist
period, namely quantitative trade barriers such as trade controls and quotas.
The agreement also provided a system to arbitrate commercial disputes among
nations, and the framework enabled a number of multilateral negotiations for
the reduction of tariff barriers. The General Agreement on Tariffs and Trade
was regarded as a significant success in the post-war years.

2.2 MULTINATION’S NEGOTIATIONS (MTN)

Under auspices of the General Agreement on Tariff and Trade, on Article
XXVIII, the contracting parties are committed themselves to hold a multi-
nation trade negotiations or rounds. It is understood that the reference to fiscal
needs would include the revenues aspect of duties and particularly duties
imposed primarily for revenue purpose, or duties imposed on products which
can be substituted for products subject to revenue duties to prevent the
avoidance of such duties. About 2004, eight rounds have done. First five round
concentrated on item-by-item tariff reduction. The Kennedy round (1964-67)
was noted for its achievement of across-the-board tariff reduction.

The General Agreement on Tariffs and Trade regularly held the multi-nations
meetings seeking to open up international trade. These periodic General
Agreement on Tariffs and Trade rounds cumulatively reduced average tariff
barriers to 80% below those existing in the post-World War II era. The Uruguay
rounds finalised in 1994, average tariff of developed countries on dutiable
manufactured imports were cut from 6.3% to 3.9%.

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The Uruguay Round also changed General Agreement on Trade status. Before
the round, it was the only multilateral trade agreement; and it only covered
trade in goods. The Uruguay Round expanded the coverage of the multilateral
rules to include services and intellectual property. General Agreement on
Trade in Services now stands alongside the General Agreement on Trade in
Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual
Property Rights (the TRIPS Agreement) as one of the agreements of the World
Trade Organization (WTO) which was established on 1 January 1995.

2.3 COMPLETE GENERAL AGREEMENT ON TARIFFS AND TRADE ROUNDS

a. The first round was in Geneva in 1947 and it was attended by 19
countries. The focus in this opening conference was on tariffs. The
members established tax concessions touching over US$10 billion of
trade around the globe.

b. The second round was in Annecy in 1948 attended by 27 countries. The

series of meetings began in April 1949 and were held in France. Again,
tariffs were the primary topic and they accomplished an additional
5,000 tax concessions reducing tariffs

c. The third round was in 1950 in Torquay, this time 38 countries were
involved, and almost 9,000 tariff concessions passed, reducing tax
levels by as much as 25%.

d. The fourth round was in 1960-62 attended by 36 countries in Dillon.

Major agreement that came out of this round included a 10% reduction
of the European community’s external tariff.

e. Kennedy round was in 1964-67 attended by 74 countries in USA. The

main objective was to slash tariffs by half with a minimum of
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 exceptions, to reduce average tariffs on the world’s industrial goods
from 40% of their market value in 1947 to less than 5% in 1993. To break
down farm trade restrictions and to remove non-tariff barriers.
f. Tokyo round was in 1973-79 attended by 85 countries. Japan became
involved in the General Agreement on Tariffs and Trade for the first
time in 1956 at the fourth meeting along with 25 other countries. The
meeting was in Geneva, Switzerland, and again the committee reduced
worldwide tariffs, this time by US$2.5 billion. In the Tokyo Round of
multilateral trade negotiations (1974-79), an Agreement on Technical
Barriers to Trade was negotiated (the 1979 TBT Agreement or
“Standards Code”). Only some countries signed it.
Although the primary purpose of this agreement was not the
regulation of sanitary and phytosanitary measures, it covered all
technical requirements including those resulting from food safety and
animal and plant health measures, pesticide residue limits, inspection
requirements and labelling.

g. Uruguay round was in 1986-94 attended by 128 countries. The

Uruguay rounds finalised in 1994, average tariff of developed countries
on dutiable manufactured imports were cut from 6.3% to 3.9%. this
session led to the birth of World Trade Organisation (WTO). The
original GATT was revised as part of the 1986-94 Uruguay Round. The
revision is officially “GATT 1994”. It incorporates the original “GATT
1947”, much of which remains untouched. The revised GATT is the
WTO’s umbrella treaty for trade in goods. Its rules apply when not
superseded by a more specific WTO agreement. For food safety and
animal and plant health measures the rules of the SPS Agreement
prevail over those of the updated GATT.

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The Uruguay Round also updated the technical barrier to trade
agreement. The older 1979 version took effect on 1 January 1980. At the
end of 1994, before it was superseded by the new version, its
signatories were the European Union (12 countries at the time, plus 8
countries which subsequently became members) and 26 others. The
Uruguay Round made two broad changes: the WTO technical barrier
to trade agreement revised the original version, and has been signed by
all WTO members as part of the “single undertaking”, which also
includes the SPS Agreement and the majority of WTO treaties.
The Uruguay Round agreements on goods fall essentially into four
groups. First is the “GATT, a modified version of the original General
Agreement on Tariffs and Trade (now referred to as the “GATT 1947”),
together with certain comparatively minor agreements which interpret
or bring up to date particular GATT provisions, and a legal text (the
Marrakesh Protocol) that brings under the multilateral GATT umbrella
the individual tariff and non-tariff commitments made by WTO
members in the Uruguay Round.
A second group consists of two major agreements that aim to bring
trade in agricultural products, and in textiles and clothing, within the
normal trading rules from which they have in recent years largely
escaped. A third group is made up of five agreements which go well
beyond the original GATT rules in prescribing how particular aspects
of policies affecting trade should be applied. And finally, a further
group of six agreements deals with different aspects of the traditional
GATT concern to regulate and ease the necessary formalities of
customs and trade administration. These are handled in other books in
this series.

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 h. Doha round was in 2001, committing all countries to negotiations
opening agricultural and manufacturing markets, as well as trade in
services (GATS) negotiations and expanded intellectual property
regulation (TRIPS). In November 2011, the Doha round failed after ten
years of negotiations. Doha is formally not completed but some issues
related to Doha Development Agenda were taken up in the Nairobi
Ministerial Conference (10th World Trade Organisation Ministerial
Conference) that took place in December 2015.

2.4 THE SIGNIFICANCE OF THE TOKYO ROUND

The formal negotiation phase of the Tokyo Round of Multilateral Trade
Negotiations (MTN) was concluded in Geneva on April 12, 1979, with 23
countries, including the United States, agreeing to a package of measures
designed to reduce obstacles to international trade. Eighteen other countries
endorsed only parts of the complete package. The agreements reached in
Geneva included a multilateral reduction in tariffs, the establishment of new
codes of conduct for international trade, some reductions in barriers to trade
in specific commodities, and reforms of the framework of the General
Agreement on Tariffs and Trade (GATT), the general set of principles that has
governed international trade throughout the post-war period.

2.4.1 Major agreements reached in the Tokyo round

Agreement on tariff reductions

The major industrialized trading countries agreed to tariff reductions on a

wide variety of items. With some important exceptions, these tariff reductions
will be phased in over an eight-year period beginning January 1, 1980. In
general, the less developed countries did not agree to tariff reductions. Among
the industrialized countries the size of tariff reductions varies both as a
percentage of existing tariffs and as absolute reductions in tariff rates. On
average, U.S. tariffs will be slightly lower after full implementation than will

Page | 29
those of the other major participants, even though other countries made larger
absolute reductions in tariff rates than did the United States. In general,
reductions in agricultural tariffs were less than reductions in other tariffs.

a. The size of the tariff reductions

The most often cited measures of the size of the agreed-upon tariff reductions
are so-called "depth of cut" figures, measuring the percentage decrease in
tariffs that will result from the Tokyo Round agreements. These figures can be
useful in conveying a general impression of the quantitative significance of the
Tokyo Round tariff reductions, but they do not reflect accurately the relative
size of the concessions made by various countries. In some cases, demand for
imported goods is very sensitive to changes in prices, and even small
reductions in tariff rates can bring about large increases in imports.
Conversely, the demand for many internationally traded commodities is
nearly insensitive to variations in price; even large tariff reductions for these
commodities will have little effect on trade flows. Thus, one should not place
too much emphasis on the relative depths of tariff cuts made by various
countries; these do not serve as accurate measures of the relative concessions
made by each.
The tariff cuts negotiated in Geneva, although large in percentage terms, will
have only a small effect on the overall price level of dutiable imports. This is
because tariff rates are, on average, fairly low already. Throughout the Tokyo
Round negotiations on tariff cuts, primary emphasis was placed on reductions
in industrial tariffs. In most cases the European Country is an exception tariffs
on agricultural products were reduced less than were tariffs on industrial
products.

b. The sectoral distribution of the tariff reductions

At the outset of the Tokyo Round, the United States proposed that all tariffs be
reduced uniformly by 60 percent. (This was the maximum reduction allowed
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for U.S. tariffs by the Trade Act of 1974.) The European Community rejected
this proposal, urging instead that tariffs should be both reduced and
"harmonized" that is, that higher tariffs should be reduced by a higher
percentage than lower ones. Eventually, it was agreed that the so-called "Swiss
formula" should serve as the basis for tariff cutting.
Ideally, all tariffs would be cut by the amounts specified by the formula, with
exceptions being made for particularly sensitive commodities or for
commodities for which the application of the formula would result in a larger
reduction than the negotiators were empowered to agree to. Strict adherence
to the Swiss formula would have led to average tariff reductions of 42 percent
for the United States, 43 percent for the European Countries, 68 percent (in
applied rates) for Japan, and 39 percent (in applied rates) for Canada much
larger cuts than were in fact made.
Some indications of which industries were considered particularly sensitive to
increased import competition and therefore deserving of special consideration
by each of the participants can be obtained by comparing the tariff reductions
that actually resulted from the Tokyo Round negotiations with the reductions
that would have resulted from a strict application of the Swiss formula.
Agreement on trade in civil aircraft

One other agreement affecting specific products was reached in Geneva

concerning trade in civil aircraft. In most respects, the agreement on trade in
civil aircraft is simply an elaboration of other codes agreed to in Geneva, noting
specifically how each applies to civil aircraft. The agreement eliminates all
tariffs on nonmilitary aircraft, engines, aircraft parts, and flight simulators. The
parties to the agreement also undertake to purchase aircraft for their national
airlines purely on the basis of competitive price, quality, and delivery time.

Further, the signatories note that governments are often necessarily deeply
involved in national aircraft industries, and they therefore agree to use care in

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avoiding export subsidies or other practices that could hamper competitive
trade.
Agreements on non-tariff

Among the several elements of the Tokyo Round agreements, most attention
has focused on the provisions affecting nontariff barriers to trade. These
nontariff barriers can take a wide variety of forms, ranging from direct
quantitative restrictions to various procedural and administrative practices
that have the result of hindering the international flow of trade. Generally, the
term "nontariff barriers to trade" is used to denote any government policy
except tariffs that limits international trade.
Measures Agreements on nontariff measures were a new feature of the Tokyo
Round negotiations; previous rounds of trade talks had concentrated on tariff
reductions. For this reason, and because nontariff practices are regarded as the
major barriers to trade today, these nontariff agreements are generally seen as
the most important elements of the Tokyo Round package. The agreements are
of three types: codes of conduct for international trade, reform of the GATT
framework, and reductions in nontariff barriers affecting particular
commodities.
In addition to the six codes that were settled on in Geneva, negotiators
considered, but could not agree upon, two other codes. One of these, the so-
called "safeguards" code, was to have detailed what actions are available to
countries faced with sudden increases in imports of a particular product. The
GATT currently allows countries to take action against such import surges in
order to safeguard threatened domestic producers. In recent years, however,
the major industrial nations have increasingly ignored the GATT mechanisms
in such circumstances, preferring instead bilaterally negotiated arrangements
by which other countries have agreed "voluntarily" to limit their exports of the
product in question. The code was to have brought safeguard actions back into
the GATT framework.

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The main obstacle to agreement on this code has been the issue of selective
safeguard actions. The European nations have insisted on the right to apply
safeguard actions against imports from specific countries. Although they have
not taken clear stands on this issue, the United States and Japan are reported
to be willing to accept the European Country position. Less developed
countries, however, fearing that they would become the chief targets of such
selective safeguards, have insisted on the maintenance of the current GATT
requirement that safeguard actions be applied equally against imports from all
sources. To date, no way around this impasse has been found.
Agreements affecting nontariff measures

The agreements reached in Geneva affecting nontariff measures are of three

major types: codes for the conduct of international trade, reform of the GATT
framework, and reductions of nontariff barriers to trade in specific products.
While agreements of the last two types are likely to be quite important for the
less developed countries and for agricultural trade, respectively, the codes
governing the conduct of international trade have the potential for reshaping
the way trade is carried on and for controlling the use of a wide variety of
nontariff measures in the future. For this reason, these codes are widely viewed
as the most important products of the Tokyo Round.

2.4.2 Six major codes for the conduct of international trade

Six major codes for the conduct of international trade were agreed to. These
codes address trade problems inherent in government procurement, the use of
subsidies and the imposition of countervailing duties, "dumping" of goods in
foreign markets, customs valuation, the setting of standards for imports, and
the issuance of import licenses.
The codes address a diverse set of concerns, but they have in common that
each of them establishes mechanisms for the monitoring of its own operation
and for settling disputes concerning its proper application. These mechanisms
vary somewhat from one code to the next, but in all cases, they involve the
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establishment of a special committee of signatories to the code to consider
contested issues. These dispute settlement procedures are generally seen as an
improvement over current GATT procedure. How much of an improvement
the new procedures will be, however, and whether they will in fact allow
effective enforcement of the new codes remain to be seen.
In addition to the six codes that were settled on in Geneva, negotiators
considered, but could not agree upon, two other codes. One of these, the so-
called "safeguards" code, was to have detailed what actions are available to
countries faced with sudden increases in imports of a particular product. The
GATT currently allows countries to take action against such import surges in
order to safeguard threatened domestic producers. In recent years, however,
the major industrial nations have increasingly ignored the GATT mechanisms
in such circumstances, preferring instead bilaterally negotiated arrangements
by which other countries have agreed "voluntarily" to limit their exports of the
product in question. The code was to have brought safeguard actions back into
the GATT framework.

1. The government procurement code

The Government Procurement Code requires that, in making decisions on

nonmilitary procurement, governments and national entities under the
substantial control of governments will give foreign producers treatment no
less favourable than is given to domestic producers. The
Subsidies/Countervailing Duties Code clarifies GATT policy regarding both
government export subsidies and the imposition of countervailing duties. In
agreeing to this code, the United States has undertaken not to impose
countervailing duties without first determining that foreign subsidies are
causing; or threatening to cause injury to domestic U.S. industries.
Article III of the GATT specifically exempts government procurement from the
general provisions of that agreement. This exemption has left governments
free to discriminate against foreign products in their procurement decisions,
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and most governments including the U.S. government have done so for many
years. This discrimination has been accomplished through simple price
preferences for domestic goods as established, for example, in the United
States by the Buy American Act of 1933, through a variety of less explicit
barriers to foreign bidding for government contracts, and in some cases
through outright exclusion of foreigners from bidding for government
procurement contracts.

2. Anti-Dumping Code

The Anti-Dumping Code clarifies GATT policy toward dumping, the selling
of goods in foreign markets below the prices at which similar goods are sold
in domestic markets. Current U.S. practice generally conforms with the new
code, and few changes are expected.
The Standards Code outlines procedures for setting and enforcing national
health, safety, performance, quality, and labelling standards for imports. Its
intent is to simplify compliance with such standards and to prevent their use
as barriers to trade. Because standards are of particular importance for high.

3. The Import Licensing Code

The Import Licensing Code provides some guides for import licensing
practices. It is intended to ensure that these practices are not used to restrict
trade in a discriminating way. Among other provisions, it prohibits the
rejection of applications for import licenses because of minor clerical errors.
The import licensing code requires that procedures be as simple, open, and
"transparent" as possible, and applied in a non-discriminatory manner to
products from all signatory countries. It also prohibits the rejection of
applications for import licenses because of minor errors in documentation, and
the refusal of imports because of minor variations in quantity or weight from
amounts designated in the license. This code, too, establishes a committee of
signatories to facilitate consultation and dispute settlement.
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 4. The subsidies/countervailing duties code

The GATT has always prohibited the payment of government subsidies

designed to promote exports at the expense of other signatories to the
agreement. It has also, however, specifically allowed the payment of
government subsidies "exclusively to domestic producers." The dividing line
between purely domestic subsidies and subsidies for export items is
necessarily vague; all subsidies affect the costs of production and could
therefore influence the level of imports or exports of specific products. When
a subsidy is determined to cause or threaten injury to the interests of another
country, the country granting the subsidy is required to "discuss the possibility
of limiting the subsidy." Injured countries are also permitted to impose
countervailing duties intended to remove the advantage bestowed by a
subsidy on imports of subsidized products, but only after determining that the
subsidy is causing or threatening to cause material injury to industries in the
importing country.
The new subsidies/countervailing duties code seeks to strengthen and clarify
international policy toward subsidies. It recognizes that governments may
provide subsidies for legitimate purposes. In general, subsidies can be used to
"promote social and economic policy objectives," such as aid for depressed
regions of a country, the maintenance of employment, and the promotion of
research and development. The signatories to the code, however, undertake to
avoid subsidies that would cause injury to domestic industries of other
signatories or displace their products in the markets of the subsidizing
country, nullify the benefits granted by tariff concessions, or prejudice the
interests of other suppliers to third-country markets. To aid in identifying such
subsidies, the code contains an "Illustrative List of Export Subsidies" that are
to be avoided.
The code provides special treatment for less developed countries, specifically
exempting them from the prohibition against export subsidies. In return, they

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are called upon to enter into "commitments" to eliminate these subsidies as
their economic development allows. The code also establishes a committee of
signatories to consider complaints about compliance with the terms of the
code.

5. The customs valuation code

Tariff rate reductions alone do not always lead to reductions in duties charged
on imported goods. By adjusting the method for determining the value of
imported goods, customs officials can increase duties independently of tariff
rates. Many exporters have often complained that foreign customs officials
arbitrarily inflate the value of other countries products, thus requiring higher
duties, and that uncertainties over foreign customs valuation procedures
complicate the transaction of international business.
The customs valuation code is intended to reduce the arbitrariness of various
national methods of customs valuation. To this end, it establishes the
"transaction value" of a product "the price actually paid or payable for the
goods when sold for export" plus certain other costs and expenses associated
with the transaction as the primary method for valuing imports. The code also
identifies four alternative methods for valuation that are to be used in a
specified order of preference when for some reason the primary method is not
applicable. In agreeing to this code, the United States has agreed to abandon
its use of the method of customs valuation. This code, like the other codes, also
establishes a committee of signatories to facilitate the settlement of disputes
concerning the code's provisions.

6. The code on technical barriers to trade (standards code)

Among the national trade policies that are most vexatious to foreign producers
are those setting standards for the quality, performance, safety, or labelling of
imported products. More than half of the complaints of unfair treatment filed
with the Office of the Special Representative for Trade Negotiations by
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exporters have concerned matters of standards. While few would deny the
right of governments to apply reasonable standards to protect their domestic
consumers from foreign products of inadequate quality, there has been an
increasing sense that standards are often applied in ways that seriously disrupt
trade. In some cases, exporters see the standards as frivolous, restricting
imports with no clear benefit to consumers. In other cases, goods thought by
exporters to be in compliance with the relevant standards have been denied
entry because they infringed details of standards that had not been completely
understood. In still other cases, goods are required to undergo expensive
certification procedures, sometimes duplicative of procedures already
satisfied in other countries. The possibilities for restricting trade through the
use of technical barriers are obviously quite various.
The most important aspect of the standards code is the recognition that
national standards should not be allowed to disrupt trade unnecessarily. The
code calls on all its adherents to ensure that standards are not adopted or
applied with a view to creating obstacles to trade. It states, further, that
whatever standards are adopted must be applied without discrimination:
imported goods are to be subject to the same standards as domestic goods, and
imports from all sources are to be treated similarly. Parties to the agreement
are required to adopt international standards whenever possible, to publish
details of their own standards whenever these standards are different from
international norms, and to provide a point of enquiry where questions
regarding standards can be handled expeditiously. Whenever possible,
signatories will accept certification of products issued by other parties to the
agreement. The code also establishes a committee of signatories to monitor
compliance with its provisions and to aid in settlement of disputes.
This code is not expected to bring about any direct near-term changes in trade
flows. In the longer run, however, it should allow trade to expand as technical
obstacles are gradually reduced. Obstacles of this sort are particularly

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important for trade in technologically sophisticated items. Because the United
States is a major producer and exporter of such items, it may be expected to
reap particular advantages from the implementation of the code. Much of the
code's effectiveness will depend on just how the provisions are implemented
and enforced. At present, there is no way of estimating its specific effects.

2.4.3 Combined effects of agreements on tariffs and non-tariff measures

The agreements negotiated in the Tokyo Round are diverse, and their effects
will be felt in a variety of ways. Some of the effects are amenable to economic
analysis, and some are not. Some will flow directly from the tariff reductions
that have been negotiated, and some will depend on decisions yet to be made
concerning the manner in which the new codes are to be implemented and
enforced. Some of the effects of the Tokyo Round agreements will be
observable almost immediately as the codes are implemented; some will be felt
over the next eight or ten years as tariffs are reduced; and some will be felt only
as the longer-term processes of economic growth are changed by changing
trade patterns. What follows is an attempt to sum up what can be; said now
about the ultimate effects of the entire package of Tokyo Round agreements.
a. Employment effects

Because the effects of changes in tariffs and nontariff measures interact with
each other, the overall employment effects of these changes in the United
States will be somewhat different than the sum of the individual changes
considered separately. The principal finding of studies of the effects of
individual elements of the Tokyo Round package, however, remains
unchanged: The employment effects of the entire Tokyo Round package of
agreements are very small.
Only Deardorff and Stern have calculated the combined employment effects
of the various parts of the Tokyo Round agreements. Their estimates include
the effects of tariff reductions and changes in two types of nontariff measures
those affecting agriculture and government procurement. The industries
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enjoying increased employment opportunities will be those employing
sophisticated, modern technologies and highly skilled workers, while those
experiencing reduced employment opportunities will be labour-intensive
industries and those with less sophisticated technologies.
b. Price and welfare effects

Among the benefits claimed for the Tokyo Round agreements is that the prices
paid for imported commodities will fall and with them the overall price level.
Further, lower prices for imported goods will increase competitive pressure on
domestic producers of similar goods, limiting their ability to raise prices.
Also complicating the estimation of the price effects of trade liberalization are
the effects that liberalization may have on exchange rates. If trade liberalization
increases a country's imports more than its exports, one would expect the value
of its currency to fall. This devaluation of the currency will increase the price
of imports and erode somewhat the price reductions brought about by lowered
tariffs. If liberalization increases exports more than imports, the process will
yield the opposite result.

c. International political effects

As is the case with any major multilateral undertaking, the Tokyo Round
negotiations have had an important political dimension, and it may be that the
most important results of the Tokyo Round agreements will lie in their effect
on the political climate that produces national trade policies.
For a variety of reasons--disappointing economic growth in the industrialized
world, structural changes in the world economy, and increased government
involvement in heretofore private commercial activities sentiment for
protectionism has been rising throughout the developed world. There seems
little reason to expect that its underlying causes will weaken significantly in
the near future. Many observers fear that, without some formal steps toward
liberalized trade, these sentiments will continue to grow stronger, leading to a

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proliferation of new trade barriers and a subsequent decline in world trade. In
a sense, the Tokyo Round agreements may be important not so much for what
they will accomplish as for what they will prevent.
Similarly, the trade talks have served as an important link between the
industrialized and the less developed countries and particularly between the
industrialized countries and the more advanced Least Developed Countries,
which have the most to gain from increased access to markets in the
industrialized world. For these countries, the new role of international trader
brings with it new opportunities for economic growth, new domestic political
and economic problems, and new responsibilities.
The United States and its industrialized allies have a strong interest in how the
rapidly developing countries meet these opportunities, problems, and
responsibilities. They also have, therefore, a strong interest in maintaining
close contact with these countries through such channels as the trade
negotiations. That full agreement could not be reached in the Tokyo Round
between developed and less developed countries must: stand as a
disappointment, though there is hope that at least some of the Least Developed
Countries will eventually subscribe to the entire package of Tokyo Round
agreements.

2.4.4 What the Tokyo round did not accomplish

The successful conclusion of the Tokyo Round negotiations represents a major
accomplishment particularly in light of the recent instability of the
international economic system. The negotiations did not, however, accomplish
all that some observers had hoped. Among the disappointments were the
failure to agree on a safeguards code detailing steps to be taken in the face of
sudden increases in imports; a failure to deal with quantitative trade
restrictions; the refusal of all but one less developed country to endorse the
entire package of agreements; the inability to strengthen appreciably the GATT
mechanisms for enforcement and dispute settlement; and the absence of
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discussion of large-scale, long-term bilateral barter arrangements between
countries. These issues stand as the major problems to be faced in future
bilateral or multilateral trade talks.
As the preceding sections have illustrated, the Tokyo Round agreements
constitute major progress toward reducing at least some barriers to
international trade. Of particular importance is the progress that has been
made concerning nontariff barriers progress unprecedented in earlier rounds
of trade negotiations. The accomplishments of the negotiators in Geneva are
all the more impressive because they have come during a period of
international economic uncertainty and structural change that has placed
strains on all economies. The pressures for protectionism arising from such
uncertainty and change are strong, and to an important degree the participants
in the Tokyo Round have withstood them.

But the Tokyo Round did not accomplish all that some observers had hoped
for. This is not surprising, of course, in negotiations of such size and
complexity. Nonetheless, an appropriate way to conclude a discussion of the
accomplishments of the Tokyo Round may be to consider briefly what the
negotiators did not accomplish.
a. Failure to achieve a systematic progress on the general issue of
quantitative restrictions

The failure to achieve agreement on a safeguards code is in some respects only

one aspect of a more general failure of the Tokyo Round participants to make
any systematic progress on the general issue of quantitative restrictions. A
number of specific quotas were removed or expanded, but no attempt was
made to draw up guidelines for the use of quantitative restrictions or to
negotiate their eventual elimination.
b. Failure to achieve agreement on a safeguards code

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Much more disappointing has been the failure to reach agreement on a
safeguards code. In the absence of effective safeguard procedures, most
industrial countries have turned in recent years to bilaterally negotiated
"orderly marketing arrangements" and "voluntary" export restraints.

Many have criticized such arrangements because they violate the general
GATT principle of non-discrimination; these arrangements restrict the exports
of some countries but not of others. Nor are these arrangements subject to even
the current highly imperfect procedures for international review provided by
the GATT; an often-heard complaint is that large, powerful nations can too
easily dictate the terms of such agreements to smaller, weaker nations.
c. Failure to strengthen the GATT dispute settlement mechanism

The talks also failed to strengthen significantly the GATT dispute settlement
mechanism. Some creditable first steps have been taken, and perhaps it is
unrealistic to expect sovereign states to subject themselves to a supranational
entity even in very narrowly defined areas. Nonetheless, few observers expect
the Tokyo Round to bring about any major improvement in what are generally
regarded as inadequate GATT procedures for enforcement of the provisions of
trade agreements and for the settling of disputes arising over these provisions.
d. Failure in the area of quantitative restrictions

This failure in the area of quantitative restrictions is a particular

disappointment to the less developed countries. The products now subject to
such restrictions—textiles, footwear, and television sets are the most important
are in many cases exclusively exports of less developed countries.
The removal of these barriers would be the most important trade concession
that the developed countries could make to the Least Developed Countries.
That no progress was made in this area must be seen as contributing to the
dissatisfaction that led most Least Developed Countries, at least for the
present, to reject the Tokyo Round package.
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2.5 CORE PRINCIPLES OF THE GENERAL AGREEMENT ON TARIFFS AND TRADE
The central principles common to the General Agreement on Tariffs and Trade
1994 and its predecessor are well known. They are so important, however, that
they must be recalled and briefly discussed. These are the most-favoured-
treatment rule, the principle of reduction and binding of national tariffs, the rule of
national treatment, and the prohibition subject to defined exceptions of protective
measures other than tariffs.

Two major exceptions to these central rules that have also been carried over
into the General Agreement on Tariffs and Trade 1994 the provisions on
regional trading arrangements and on restrictions to protect the balance-of-
payments will be considered separately, in conjunction with the Uruguay
Round understandings that have slightly modified them.

2.5.1 Most Favoured Treatment

Article I

The Most Favoured Treatment rule is basic to the whole edifice of the General
Agreement on Tariffs and Trade. Stated in Article I of the General Agreement
on Tariffs and Trade, it requires that if one General Agreement on Tariffs and
Trade signatory grants to another country “more favourable treatment” (such as
a reduction in the customs duty payable on imports of a particular product), it
must immediately and unconditionally give the same treatment to imports
from all signatories.

In other words, all General Agreement on Tariffs and Trade members are
entitled to receive the most favourable treatment given by any member or to
put it the other way round, they are entitled not to be discriminated against.

This Most Favoured Treatment, or non-discrimination, obligation applies to

customs duties and charges of any kind connected with importing and

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exporting, as well as to internal taxes and charges, and to all the rules by which
such duties, taxes and charges are applied.

2.5.2 National treatment

Article III

The rule of national treatment, in Article III of the General Agreement on

Tariffs and Trade, is also of fundamental importance. It complements the most
favoured rule. Whereas Article I, by requiring most favoured treatment, puts
the products of all of a country’s trading partners on equal terms with one
another, the national treatment principle puts those products on equal terms
also with the products of the importing country itself.

It says that, once imports have passed the national frontier (and in so doing
have paid whatever import duty is imposed) they must be treated no worse
than domestic products. Internal taxes or other charges on the imports must
be no higher than on domestic products, and laws and regulations affecting
their sale, purchase, transportation, distribution or use must be no less
favourable than for goods of national origin.6

In addition to the requiring of Multination negotiations (MTN) and National

treatment, General Agreement on Tariffs and Trade prohibits certain use of
quantitative restriction which are as follows:

2.5.3 General Elimination of Quantitative Restrictions

Article XI

No prohibitions or restrictions other than duties, taxes or other charges,

whether made effective through quotas, import or export licences or other
measures, shall be instituted or maintained by any contracting party on the
importation of any product of the territory of any other contracting party or on

6 Bhala, R., 2019. international Trade Law: a Comprehensive Textbook. 5th ed. Durham

Page | 45
the exportation or sale for export of any product destined for the territory of
any other contracting party.

Article XI broadly but not completely prohibits the other use of prohibition of
imports from contracting parties. It prevents the use of quotas, imports license
or other measures to restrict imports from a contracting party. When such a
measure is authorised, Article XIII comes in to take an action.7

2.5.4 Non-discriminatory Administration of Quantitative Restrictions

Article XIII

No prohibition or restriction shall be applied by any contracting party on the

importation of any product of the territory of any other contracting party or on
the exportation of any product destined for the territory of any other
contracting party, unless the importation of the like product of all third
countries or the exportation of the like product to all third countries is similarly
prohibited or restricted.

2.6 GENERAL AGREEMENT ON TARIFFS AND TRADE PROCEDURES

2.6.1 Publication and Administration of Trade Regulations

Article X

First the general agreement on tariffs and trade requires that a notice must be
given of any international trade on any national regulation change. Each
contracting party shall maintain, or institute as soon as practicable, judicial,
arbitral or administrative tribunals or procedures for the purpose, inter alia, of
the prompt review and correction of administrative action relating to customs
matters. Each contracting party shall administer in a uniform, impartial and
reasonable manner all its laws, regulations, decisions and rulings.

7 INTRODUCTION TO GATT 1994 & 1947

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2.6.2 Tariff Negotiations
Article XXVIII

The contracting parties recognize that customs duties often constitute serious
obstacles to trade; thus negotiations on a reciprocal and mutually
advantageous basis, directed to the substantial reduction of the general level
of tariffs and other charges on imports and exports and in particular to the
reduction of such high tariffs as discourage the importation even of minimum
quantities, and conducted with due regard to the objectives of this Agreement
and the varying needs of individual contracting parties, are of great
importance to the expansion of international trade. The contracting parties
may therefore sponsor such negotiations from time to time.

Article XXVIII of the general agreement on tariffs and trade governs the
negotiations that are required when a member wishes to withdraw or modify
a past concession. Under the rules, the right to compensation for loss of the
benefits of a tariff binding for a particular product is largely reserved to
countries that have a recognized status as the initial negotiators or principal
suppliers.

2.6.3 Transparency
A further principle carried over to GATT 1994 is that of transparency.
Multilateral review and transparency are a major element in the WTO itself (in
the Agreement Establishing the WTO). It is retained also in general
requirements imposed by GATT Article X for trade policies and regulations
affecting trade in goods, and in more specific requirements built into many
other Uruguay Round agreements.8

These key elements which shaped the functioning of the old GATT system,
and which are still present under the GATT 1994, will not be discussed further

8
INTRODUCTION TO GATT 1994 & 1947

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here. Numerous studies of these principles, pitched at every level of detail and
sophistication, have been published over the years since the GATT came into
force, and have passed judgement on their economic and political effect. The
purpose of recalling them here is only to underline that they will continue to
operate, and presumably to have similar effects, under the WTO. The
discussion which follows will turn instead to changes introduced into the
GATT rules by the Uruguay Round agreements.

2.6.4 Tariffs preferred

The national treatment principle means that protection of the domestic
supplier of a product should be given only through action at the frontier. A
further set of GATT rules has the shared aim of restricting even frontier
protection, as far as possible, to the single instrument of import duties.

Quantitative restrictions on imports, and on exports, are in general banned, by

Article XI, although a number of provisions in this and other articles4 state
exceptions to this general rule. (Two such exceptions are affected by the
Uruguay Round agreements on balance-of-payments measures and
safeguards.

Alternative forms of protection (usually in the form of duties) that are

permitted if domestic industries are threatened by imports that are subsidized
or dumped (GATT 1947 Article VI) are also elaborately regulated by further
Uruguay Round agreements. However, the basic aim of making import duties
the sole form of trade restriction has been retained under the GATT 1994:
indeed, it has been greatly reinforced in the very important sector of trade in
agricultural products.

2.6.5 Tariff reductions and bindings

This core principle is that the members undertake commitments in which they
state the maximum level of import duty or other charge or restriction that they
will apply to imports of specified types of goods. These commitments, or
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“bindings” may result initially from bilateral negotiations, in which (for
instance) the government concerned has agreed to another country’s request
that it reduce the import duty on certain products.

However, the commitments are then recorded in national schedules which,

through the provisions of Article II, become part of each country’s obligations
under the GATT and, because of the operation of the MFN rule, apply to
imports from any member. The provisions of Article II, combined with
technical rules in Article XXVIII on modifying schedules, provided the basis
under which most of the developed countries took part in successive rounds
of GATT negotiations to reduce their tariffs, binding their results in
progressively more constraining schedules.

Developing countries to a great extent stood aside from this process, and many
had no schedule of bindings at all. Under the WTO all members are required
to have schedules, and the proportion of products subject to bindings is
generally much higher than before. The Article II and XXVIII rules will continue
to guide negotiations under the WTO for the reduction of barriers to trade in
goods.9

9 Honnold, 1999. Uniform Law for International Sales under the 1980 United Nations Convention. 1st
ed. Kluwer: Routledge.

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3 THE WORLD TRADE ORGANIZATION

In brief, the World Trade Organization (WTO) is the only international

organization dealing with the global rules of trade between nations. Its main
function is to ensure that trade flows as smoothly, predictably and freely as
possible. The former General Agreement on Tariffs and Trade system, now
replaced by the World Trade Organization and the agreements in the Uruguay
Round package, was centred on the General Agreement on Tariffs and Trade
itself. The General Agreement, as negotiated in 1947 among its 23 original
participants, laid down central principles to constrain and guide national trade
policies, and provided the basis on which governments were able to carry
forward and extend their multilateral cooperation on trade.

The World Trade Organization has taken over from the General Agreement as
the basis for institutional cooperation and dispute settlement on trade matters
among its members. But the core principles of the General Agreement on
Tariffs and Trade are still in place, and the Uruguay Round package cannot be
understood except in relation to them.

3.1.1 Creating the world trade organization

Creating the World Trade Organisation took eight years of negotiations. The
system was developed through a series of trade negotiations, or rounds, held
under the General Agreement on Trade and tariffs. The first rounds dealt
mainly with tariff reductions but later negotiations included other areas such
as anti-dumping and non-tariff measures. The last round, the 1986-94 Uruguay
Round led to the World Trade Organization’s creation.

The major issue was trade in agricultural goods with the European Union
maintaining a protective position and the United States of America seeking to
reduce agricultural barriers and subsidies. In 2000, new talks started on
agriculture and services. These have now been incorporated into a broader
work programme, the Doha Development Agenda (DDA), launched at the
Page | 50
fourth World Trade Organization Ministerial Conference in Doha, Qatar, in
November 2001. The agenda adds negotiations and other work on non-
agricultural tariffs, trade and environment, World Trade Organization rules
such as anti-dumping and subsidies, investment, competition policy, trade
facilitation, transparency in government procurement, intellectual property,
and a range of issues raised by developing countries as difficulties they face in
implementing the present World Trade Organization agreements. In the end,
a modern compromise has achieved in the World Trade Organization.

3.1.2 World Trade Organization 1994

The agreements were the outcome of the 1986–1994 Uruguay Round of world
trade negotiations held under the auspices of what was then the General
Agreement on Tariffs and Trade. The World Trade Organization came into
being in 1995. One of the youngest of the international organizations, the
World Trade Organisation is the successor to the General Agreement on Tariffs
and Trade established in the wake of the Second World War. So, while the
World Trade Organization is still young, the multilateral trading system that
was originally set up under General Agreement on Tariffs and Trade is well
over 50 years old. From 1947 to 1994, General Agreement on Tariffs and Trade
also served another role it was a de facto international organization for
negotiating and administering the multilateral trade rules. That role has now
formally been taken over by the World Trade Organization.

The General Agreement on Tariffs and Trade 1947 and General Agreement on
Tariffs and Trade 1994 are two distinct agreements. General Agreement on
Tariffs and Trade 1994 incorporates provisions of 1947, except for the protocol
of provision application which is expressly excluded. Therefore, the problems
created by exempting existing national laws at the time of adoption of protocol
are avoid by this exclusion in the covered agreement. Otherwise, in cases
involving general Agreement on Tariff and Trade 1947 and 1994, the General
Agreement on Tariff and Trade 1947 prevails or controls.
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The General Agreement on Tariffs and Trade 1947 is no longer in effect.
However, it is still necessary to read it. Its successor, the General Agreement
on Tariffs and Trade 1994, is defined only by a brief agreement1 that, although
entitled “General Agreement on Tariffs and Trade 1994”, is little more than a
series of references to other texts.

General Agreement on Tariffs and Trade is now the World Trade

Organisation’s principal rule-book for trade in goods. The Uruguay Round
also created new rules for dealing with trade in services, relevant aspects of
intellectual property, dispute settlement, and trade policy reviews. The
complete set runs to some 30,000 pages consisting of about 30 agreements and
separate commitments (called schedules) made by individual members in
specific areas such as lower customs duty rates and services market-opening

The “General Agreement on Tariffs and Trade 1994” is the basic set of trade rules,
largely taken over from the General Agreement on Tariffs and Trade 1947, that
in conjunction with the other agreements in Annex 1A to the World Trade
Organization agreement now represents the goods-related obligations of
World Trade Organization members. The world Trade Organization will be
guided by the decisions, procedures developed under the General Agreement
on Tariffs and Trade.

3.2 MULTI-LATERAL WORLD TRADE AGREEMENTS

How can you ensure that trade is as fair as possible, and as free as is practical?
By negotiating rules and abiding by them. The WTO’s rules the agreements are
the result of negotiations between the members. The current set were the
outcome of the 1986-94 Uruguay Round negotiations which included a major
revision of the original General Agreement on Tariffs and Trade (GATT). The
complete set runs to some 30,000 pages consisting of about 30 agreements and
separate commitments (called schedules) made by individual members in
specific areas such as lower customs duty rates and services market-opening.
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Through these agreements, WTO members operate a non-discriminatory
trading system that spells out their rights and their obligations. Each country
receives guarantees that its exports will be treated fairly and consistently in
other countries’ markets. Each promise to do the same for imports into its own
market. The system also gives developing countries some flexibility in
implementing their commitments. GATT is now the WTO’s principal rule-
book for trade in goods. The Uruguay Round also created new rules for
dealing with trade in services, relevant aspects of intellectual property, dispute
settlement, and trade policy reviews.

3.2.1 Goods
It all began with trade in goods. From 1947 to 1994, General Agreement on
Tariffs and Trade was the forum for negotiating lower customs duty rates and
other trade barriers; the text of the General Agreement spelt out important
rules, particularly non-discrimination Annexed to the World Trade
Organization agreements are several multi-lateral trade agreements as to trade
in goods they include agreements.

Since 1995, the updated GATT has become the WTO’s umbrella agreement for
trade in goods. It has annexes dealing with specific sectors such as agriculture
and textiles, and with specific issues such as state trading, product standards,
subsidies and actions taken against dumping.

a. Agriculture

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 imports

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 ▪ domestic support - subsidies and other programmes, including
those that raise or guarantee farmgate prices and farmers’
incomes

▪ export subsidies and other methods used to make exports

artificially competitive

b. Textile

Textiles, like agriculture, was one of the hardest-fought issues in the

WTO, as it was in the former GATT system. It has now completed
fundamental change under a 10-year schedule agreed in the Uruguay
Round. The system of import quotas that dominated the trade since the
early 1960s has now been phased out.

Since 1995, the WTO’s Agreement on Textiles and Clothing (ATC) took
over from the Multifibre Arrangement. By 1 January 2005, the sector
was fully integrated into normal GATT rules. In particular, the quotas
came to an end, and importing countries are no longer able to
discriminate between exporters. The Agreement on Textiles and
Clothing no longer exists: it’s the only WTO agreement that had self-
destruction built in.

c. Anti-dumping

Binding tariffs, and applying them equally to all trading partners

(most-favoured nation treatment, or MFN) are key to the smooth flow
of trade in goods. The WTO agreements uphold the principles, but they
also allow exceptions in some circumstances. Three of these issues are:

▪ actions taken against dumping (selling at an unfairly low price)

▪ subsidies and special “countervailing” duties to offset the

subsidies

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 ▪ emergency measures to limit imports temporarily, designed to
“safeguard” domestic industries.

GATT (Article VI) allows countries to take action against dumping. The
Anti-Dumping Agreement clarifies and expands Article 6, and the two
operate together. They allow countries to act in a way that would
normally break the GATT principles of binding a tariff and not
discriminating between trading partners typically anti-dumping action
means charging extra import duty on the particular product from the
particular exporting country in order to bring its price closer to the
“normal value” or to remove the injury to domestic industry in the
importing country.

d. Safeguards

A WTO member may restrict imports of a product temporarily (take

“safeguard” actions) if its domestic industry is injured or threatened
with injury caused by a surge in imports. Here, the injury has to be
serious. Safeguard measures were always available under GATT
(Article XIX). However, they were infrequently used, some
governments preferring to protect their domestic industries through
“grey area” measures using bilateral negotiations outside GATT’s
auspices, they persuaded exporting countries to restrain exports
“voluntarily” or to agree to other means of sharing markets.
Agreements of this kind were reached for a wide range of products:
automobiles, steel, and semiconductors, for example.

The WTO’s Safeguards Committee oversees the operation of the

agreement and is responsible for the surveillance of members’
commitments. Governments have to report each phase of a safeguard
investigation and related decision-making, and the committee reviews
these reports.
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e. Sanitary measures (SPS)

Article XX of the General Agreement on Tariffs and Trade (GATT) allows

governments to act on trade in order to protect human, animal or plant
life or health, provided they do not discriminate or use this as disguised
protectionism. In addition, there are two specific WTO agreements
dealing with food safety and animal and plant health and safety, and
with product standards in general.

Both try to identify how to meet the need to apply standards and at the
same time avoid protectionism in disguise. These issues are becoming
more important as tariff barriers fall some compare this to seabed rocks
appearing when the tide goes down. In both cases, if a country applies
international standards, it is less likely to be challenged legally in the
WTO than if it sets its own standards.

A separate agreement on food safety and animal and plant health

standards (the Sanitary and Phytosanitary Measures Agreement or
SPS) sets out the basic rules. It allows countries to set their own
standards. But it also says regulations must be based on science.

They should be applied only to the extent necessary to protect human,

animal or plant life or health. And they should not arbitrarily or
unjustifiably discriminate between countries where identical or similar
conditions prevail.

f. Pre-shipment inspection

Pre-shipment inspection is the practice of employing specialized

private companies (or “independent entities”) to check shipment
details essentially price, quantity and quality of goods ordered
overseas. Used by governments of developing countries, the purpose
is to safeguard national financial interests (preventing capital flight,

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 commercial fraud, and customs duty evasion, for instance) and to
compensate for inadequacies in administrative infrastructures.

The Pre-shipment Inspection Agreement recognizes that GATT

principles and obligations apply to the activities of pre-shipment
inspection agencies mandated by governments. The obligations placed
on governments which use pre-shipment inspections include non-
discrimination, transparency, protection of confidential business
information, avoiding unreasonable delay, the use of specific
guidelines for conducting price verification and avoiding conflicts of
interest by the inspection agencies.

The obligations of exporting members towards countries using pre-

shipment inspection include non-discrimination in the application of
domestic laws and regulations, prompt publication of those laws and
regulations and the provision of technical assistance where requested.

g. Subsidies and Countervailing measure (SCM)

This agreement does two things: it disciplines the use of subsidies, and
it regulates the actions countries can take to counter the effects of
subsidies. It says a country can use the WTO’s dispute settlement
procedure to seek the withdrawal of the subsidy or the removal of its
adverse effects. Or the country can launch its own investigation and
ultimately charge extra duty (known as “countervailing duty”) on
subsidized imports that are found to be hurting domestic producers.

h. Rules of origin

“Rules of origin” are the criteria used to define where a product was
made. They are an essential part of trade rules because a number of
policies discriminate between exporting countries: quotas, preferential
tariffs, anti-dumping actions, countervailing duty (charged to counter

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 export subsidies), and more. Rules of origin are also used to compile
trade statistics, and for “made in ...” labels that are attached to
products. This is complicated by globalization and the way a product
can be processed in several countries before it is ready for the market.

The Rules of Origin Agreement requires WTO members to ensure that

their rules of origin are transparent; that they do not have restricting,
distorting or disruptive effects on international trade; that they are
administered in a consistent, uniform, impartial and reasonable
manner; and that they are based on a positive standard (in other words,
they should state what does confer origin rather than what does not).

i. Import licence procedure

Although less widely used now than in the past, import licensing
systems are subject to disciplines in the WTO. The Agreement on
Import Licensing Procedures says import licensing should be simple,
transparent and predictable. For example, the agreement requires
governments to publish sufficient information for traders to know how
and why the licences are granted. It also describes how countries
should notify the WTO when they introduce new import licensing
procedures or change existing procedures. The agreement offers
guidance on how governments should assess applications for licences.
Some licences are issued automatically if certain conditions are met.
The agreement sets criteria for automatic licensing so that the
procedures used do not restrict trade.

3.2.2 Services
Banks, insurance firms, telecommunications companies, tour operators, hotel
chains and transport companies looking to do business abroad can now enjoy
the same principles of freer and fairer trade that originally only applied to
trade in goods. These principles appear in the new General Agreement on
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Trade in Services (GATS). World Trade Organization members have also made
individual commitments under General Agreement on Trade in Services
stating which of their services sectors they are willing to open to foreign
competition, and how open those markets are.

In the past, most services were not considered to be tradable across borders.
Much has occurred to alter the tradability of services, including health services.
Advances in communications technology, including the development of e-
commerce, as well as regulatory changes in many parts of the world have
made it easier to deliver services across borders. In many countries, changes in
government policy have left greater room for the private sector - domestic as
well as foreign - to provide services. Partly as a result, services have become
the fastest-growing segment of the world economy, providing more than 60
per cent of global output and employment.

Certain obligations apply across all service sectors, regardless of whether they
have been included in a Member's Schedule of Commitments. These
unconditional obligations, include most-favoured nation treatment (MFN),
certain transparency and notification obligations, and certain competition
principles.

3.2.3 Intellectual property rights (TRIPS)

The World Trade Organization’s Intellectual Property Agreement amounts to
rules for trade and investment in ideas and creativity. The rules state how
copyrights, patents, trademarks, geographical names used to identify
products, industrial designs, integrated circuit layout-designs and undisclosed
information such as trade secrets “intellectual property” should be protected
when trade is involved.

The areas of intellectual property covered by the TRIPS Agreement that are
relevant to health include: patents; trademarks including service marks, which
are relevant, for example, to combating counterfeit drugs; and undisclosed
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information, including trade secrets and test data. In respect of each of these
areas, the Agreement sets out the minimum standards of protection that must
be adopted by each Member. Each of the main elements of protection is
defined, namely the subject matter to be protected, the rights to be conferred
and permissible exceptions to those rights, and the minimum duration of
protection.

The TRIPS Agreement provides some flexibility for governments to fine-tune

the basic balance provided for in the Agreement in the light of national social,
developmental and other public policy objectives. While its rules require that
national legislation embody certain minimum standards of protection, they
afford considerable discretion in how these are implemented in practice. In
each area of intellectual property, it allows governments to provide for
exceptions, exclusions and limitations to rights, such as in the case of national
emergencies, public non-commercial use, or remedying anti-competitive
practices. This can be done, for example, in the form of compulsory licensing,
exhaustion regimes and other types of exceptions, provided certain conditions
are fulfilled.

3.2.4 Dispute settlement (DSU)

The World Trade Organization’s procedure for resolving trade quarrels under
the Dispute Settlement Understanding is vital for enforcing the rules and
therefore for ensuring that trade flows smoothly. Countries bring disputes to
the World Trade Organization if they think their rights under the agreements
are being infringed. Judgements by specially-appointed independent experts
are based on interpretations of the agreements and individual countries’
commitments.

The World Trade Organization Secretariat cannot challenge any Member. It

has no right to prosecute. It is up to governments to decide whether or not to
bring a dispute against another government to the World Trade Organization.

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And it is also entirely up to the complainant to argue its case. The dispute is
only between governments, and only about alleged failures to comply with
World Trade Organization agreements or commitments. So, for example, a
government cannot complain about another government's health policy as
such. It can only complain if it believes a particular measure breaks an
agreement or commitment that the other government has made in the World
Trade Organization. Companies, organizations or private individuals cannot
complain directly to the World Trade Organization, but can do so through
their governments.

The system encourages countries to settle their differences through

consultation. Failing that, they can follow a carefully mapped out, stage-by-
stage procedure that includes the possibility of a ruling by a panel of experts,
and the chance to appeal the ruling on legal grounds. Confidence in the system
is borne out by the number of cases brought to the World Trade Organization
more than 300 cases in ten years compared to the 300 disputes dealt with
during the entire life of General Agreement on Tariffs and Trade (1947-94).

Most importantly all these agreements are binding to the contracting member
states. Each contracting member is obliged to incorporate these World Trade
Organization legal into their national legal regimes.

3.3 WORLD TRADE ORGANIZATION ADMISSION

The World Trade Organization has 160 members, accounting for almost 95%
of world trade. Around 25 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 World Trade
Organization, and was extremely rare under the World Trade Organization’s
predecessor, the General the World Trade Organization’s top level decision-
making body is the Ministerial Conference which meets at least once every two
years.
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Countries that wish to join the World Trade Organization must negotiate with
existing World Trade Organization Members and a working party is set up to
handle each application. Accession working parties are open to all World
Trade Organization Members, and countries with an interest in the applicant
country's trade join the working party. Acceding country governments must
then undergo a fact-finding process regarding their trade policy and undertake
a series of commitments to bring trade policy into line with the World Trade
Organization agreements.

The accession process can be quite burdensome, complicated, and lengthy. As

of February 2002, 16 of the 44 governments that had applied for World Trade
Organization membership had completed the process and become World
Trade Organization Members.

The entire process, which in some cases began before 1995 under the General
Agreement on Tariffs and Trade, took between 3 and 10 years, except in the
case of China, which recently became a member after 15 years of accession
negotiations, this was because Mexico had extracted stiff promises against the
dumping of Chinese goods.

The following countries are some of the examples who completed their accession process

RUSSIA….

In 1993, Russia formally applied for accession to the General Agreement on Tariffs
and Trade (GATT). Its application was taken up by the World Trade Organization
(WTO) in 1995, the successor organization of the GATT. Russia’s application has
entered into its most significant phase as Russia negotiates with World Trade
Organization members on the conditions for accession.

The process had been moving forward, but, the last few years, differences over some
critical issues have made the timing of Russian accession to the World Trade
Organization uncertain. Russia completed the negotiation on 22nd August, 2012.

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VIETNAM….

Vietnam joined the World Trade Organization on 11th January, 2007. The accession
to the World Trade Organization has been initiated to secure Vietnam access to the
leading markets and to anchor the domestic reforms on strong external commitments.

IRAN….

The Islamic Republic of Iran joined on 26th May, 2005. Iran’s application had not been
considered, mainly as a result of United States of America objection and the USA veto
power in the World Trade Organization council. At the 22nd time, its application was
approved unanimously by the organization members and thus by the USA and Israel
as a goodwill gesture so as to ease the nuclear deal between Iran and the international
community.

ECUADOR, BULGARIA, MONGOLIA, PANAMA, LATVIA, ESTONIA,

KYRGYZSTAN

Ecuador and Bulgaria acceded in 1996; Mongolia and Panama acceded in 1997; the
Kyrgyz Republic acceded in 1998; and Latvia and Estonia acceded in 1999.

ALBANIA, CROATIA, GEORGIA, JORDAN, OMAN, LITHUANIA AND

MOLDOVA

The accessions of five new Members in 2000 which are Albania, Croatia, Georgia,
Jordan and Oman in 2000 brought to 12 the number of Members that have acceded to
the WTO since 1995. Lithuania and Moldova were poised to join the WTO in 2001.

Each accession has the same “win-win” quality for the WTO. The acceding
party operates a more transparent and predictable trade regime, by assuming
WTO obligations on goods, services, and intellectual property protection
(possibly with transitional periods to full implementation). It opens its markets
for goods and services to its trading partners, and thus locks-in reforms and

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gains the benefit of more competitively-priced imports. In turn, the new WTO
Member gains the right to similar rights and terms of access on the markets of
other WTO Members. These commitments are enforced on both sides by
dispute settlement. Domestic reform and integration into the world economy
thus go hand-in-hand to strengthen growth and investment prospects of the
acceding country, and of WTO Members.

Accession process

All accessions begin with a letter from the requesting government addressed
to the Director-General. The item is then placed on the agenda of the WTO
General Council for action, which generally establishes a “working party”,
composed of representatives of Members, to examine the application. The
applicant generally obtains observer status in the WTO to become familiar
with its activities.

The applicant submits a Memorandum on its Foreign Trade Regime in one of

the three official languages (English, French or Spanish), describing in detail
the regime (including copies of relevant legislation) and providing data.
Questions may then be submitted by Members, to which the applicant is
invited to respond, to establish a basis for dialogue on the regime and its
conformity with WTO obligations, with a view to ensuring a good match.
Technical assistance may be requested from the Secretariat or may be provided
by individual Members.

When the examination of the foreign trade regime is sufficiently advanced,

members of the working party may initiate bilateral market-access
negotiations on goods and services and on the other terms to be agreed. At
their successful conclusion, the results of the negotiations are reflected in the
schedules appended to the draft Protocol of Accession. The market-opening
commitments of acceding WTO Members, although negotiated on a bilateral

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basis with individual WTO Members at their request, apply to all other WTO
Members through the application of the most-favoured-nation clause.

The working party concludes its activity by submitting a report to the WTO
General Council, a draft Protocol of Accession and a draft Decision. Such a
decision on accession is, in practice, approved by consensus. The accession
takes effect 30 days after domestic ratification by the applicant.

Powers to veto

The World Trade Organization rule confers a veto power on every member of
the organization and there is a widespread belief that members would likely
oppose any efforts to replace consensus with voting.

Although a commitment is legally binding, it is not cast in stone. Governments

may withdraw it at any time with a six months’ notice. The withdrawal shall
take effect upon the expiration of six months from the day on which written
notice of withdrawal is received by the Secretary-General of the United
Nations.

3.4 PRINCIPLES OF THE TRADING SYSTEM

The rules for goods and services under the WTO share some common features.
First, the broad principles are set out in the GATT (for goods), and the General
Agreement on Trade in Services (GATS). In addition to this, there are specific
agreements or, under GATS, annexes dealing with the special requirements of
specific sectors or issues. For example, for trade in goods there are specific
agreements relating to quality and safety regulations. The GATS has several
Annexes elaborating on the Agreement's coverage of, and application to,
issues such as movements of natural persons and specific features of financial
services (for example prudential standards) and telecommunications (for
example access to and use of public networks and services).

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Both the GATT and the GATS are complemented by detailed and lengthy
schedules (or lists) of commitments made by individual countries. In the goods
area, these relate to tariff levels and, for agricultural products, also to subsidies.
In services, the commitments specify the degree of foreign access which is
guaranteed to foreign services and service providers in specific sectors,
together with any limitations on market access and national treatment. It
should be stressed that these are minimum conditions; nothing prevents a
government from according better treatment than that guaranteed in its
schedule. While treated differently in the GATT and the GATS, as well as in
the specific agreements and Annexes, the key principles of most-favoured-
nation (MFN) and national treatment are a common feature.

Most-favoured-nation (MFN)

Under the WTO agreements, countries cannot normally discriminate between

their trading partners. In simple terms, a special benefit granted to one country
(such as a lower customs tariffs for one of their products) has to be granted to
all other WTO Members. This principle, known as most-favoured-nation
(MFN) treatment, is enshrined in Article I of the GATT, which governs trade
in goods. MFN treatment is also one of core obligations of the GATS (Article II)
and the Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS) (Article 4).

Together, those three Agreements cover the main areas of trade covered by the
WTO. In general, MFN means that every time a country lowers (or introduces)
a trade barrier or opens up a market, it has to do so for the same goods or
services or service suppliers from all its fellow WTO Members whether rich or
poor, weak or strong.

National treatment

The principle of national treatment requires that imported and locally-

produced goods be treated equally, in terms of competitive opportunities in

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the importing country's market. The same applies to foreign and domestic
services and service suppliers, and to foreign and local nationals in regard to
the protection of intellectual property. This principle is found in all the three
main WTO Agreements (Article III of GATT, Article XVII of GATS and Article 3
of TRIPS), although the principle is handled differently in each of these
Agreements. National treatment under GATT only applies once a product has
entered the market. Therefore, charging customs duty on an import is not a
violation of national treatment even if locally-produced products are not
charged an equivalent duty.

Under the GATS, national treatment is not a general obligation. It applies only
to sectors listed in the individual Members' schedule of commitments.
Moreover, Members may specify in their schedules any differential treatment
they wish to apply to foreign services and service suppliers as compared to
nationals. An unqualified commitment means that they will be treated in the
same way as nationals. Under TRIPS, the principle requires foreign nationals
to be given no less favourable treatment than that given to a country's own
nationals in regard to the protection of intellectual property.

3.5 WORLD TRADE ORGANIZATION STRUCTURE

The WTO's top decision-making body is the Ministerial Conference which
meets at least once every two years. The General Council, which is normally
attended by ambassadors and other Geneva-based delegates, or capital-based
officials (who may include health experts), 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 (DSB). Delegates at the day-to-
day meetings of the WTO are government representatives of all WTO
Members and representatives of observer organizations. Both during
negotiations and in the WTO committee work, decisions are made by
consensus. Voting is possible but it has never been used in the WTO.

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First tier: the Ministerial Conference

So, the WTO belongs to its members. The countries make their decisions
through various councils and committees, whose membership consists of all
WTO members. Topmost is the ministerial conference which has to meet at
least once every two years. The Ministerial Conference can take decisions on
all matters under any of the multilateral trade agreements.

Second tier: General Council in three guises

Day-to-day work in between the ministerial conferences is handled by three

bodies:

▪ The General Council

▪ The Dispute Settlement Body

▪ The Trade Policy Review Body

All three are in fact the same the Agreement Establishing the WTO states they
are all the General Council, although they meet under different terms of
reference. Again, all three consist of all WTO members. They report to the
Ministerial Conference. The General Council acts on behalf of the Ministerial
Conference on all WTO affairs. It meets as the Dispute Settlement Body and
the Trade Policy Review Body to oversee procedures for settling disputes
between members and to analyse members’ trade policies.

Third tier: councils, bodies and the committees

Three more councils, each handling a different broad area of trade, report to
the General Council:

▪ The Council for Trade in Goods (Goods Council)

▪ The Council for Trade in Services (Services Council)

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 ▪ The Council for Trade-Related Aspects of Intellectual Property Rights
(TRIPS Council)

As their names indicate, the three are responsible for the workings of the WTO
agreements dealing with their respective areas of trade. Again, they consist of
all WTO members. The three also have subsidiary bodies.

Six other bodies report to the General Council. The scope of their coverage is
smaller, so they are “committees”. But they still consist of all WTO members.
They cover issues such as trade and development, the environment, regional
trading arrangements, and administrative issues. The Singapore Ministerial
Conference in December 1996 decided to create new working groups to look
at investment and competition policy, transparency in government
procurement, and trade facilitation. Two more subsidiary bodies dealing with
the plurilateral agreements (which are not signed by all WTO members) keep
the General Council informed of their activities regularly.

Trade policy reviews: ensuring transparency

Individuals and companies involved in trade have to know as much as

possible about the conditions of trade. It is therefore fundamentally important
that regulations and policies are transparent. In the WTO, this is achieved in
two ways: governments have to inform the WTO and fellow-members of
specific measures, policies or laws through regular “notifications”; and the
WTO conducts regular reviews of individual countries’ trade policies — the
trade policy reviews.

These reviews are part of the Uruguay Round agreement, but they began
several years before the round ended, they were an early result of the
negotiations. Participants agreed to set up the reviews at the December 1988
ministerial meeting that was intended to be the midway assessment of the
Uruguay Round. The first review took place the following year. Initially they

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operated under GATT and, like GATT, they focused on goods trade. With the
creation of the WTO in 1995, their scope was extended, like the WTO, to
include services and intellectual property.

The objectives are:

a. to increase the transparency and understanding of countries’ trade

policies and practices, through regular monitoring

b. improve the quality of public and intergovernmental debate on the

issues

c. to enable a multilateral assessment of the effects of policies on the

world trading system

For each review, two documents are prepared: a policy statement by the
government under review, and a detailed report written independently by the
WTO Secretariat. These two reports, together with the proceedings of the
Trade Policy Review Body’s meetings are published shortly afterwards.
Individual members of the WTO each prepare a “country report” on their trade
policies.

WTO secretariate also prepare a report on each member but on the perspective
of the secretariate. Trade Policy Review Body (TPRB) reviews trade policies of
each member based on their two reports. At the end of the review, the TPRB
issued its own report concerning the adherence of members trade policy to the
WTO covered agreements. The TPRB has no enforcement capability but the
report is sent to the next meeting of the WTO ministerial Council. It is then up
to the Ministerial Council to evaluate the policies of each member states.

3.6 WORLD TRADE ORGANIZATION DISPUTE SETTLEMENT

WTO provide a unified system for settling disputes. Settling disputes is the
responsibility of the Dispute Settlement Body (the General Council in another

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guise), which consists of all WTO members. The Dispute Settlement Body has
the sole authority to establish “panels” of experts to consider the case, and to
accept or reject the panels’ findings or the results of an appeal. It monitors the
implementation of the rulings and recommendations, and has the power to
authorize retaliation when a country does not comply with a ruling.

There is also a binding parallel process for binding arbitration if both parties
agree to submit the dispute arbitration rather than to DSB panel. There are
three points wealth of emphasizing:

i. Dispute settlement before the dispute settlement body (DSB) once

initiated is compulsory and binding.

ii. Dispute settlement option is not open to private litigants, only member
state, governments may file an action before the DSB

iii. Although formally binding, the WTO has no direct powers to compel
compliance with its decisions.

None the less, it may order compensation for the aggrieved state or authorise
retaliatory trade sanctions and these may provide a significant incentive for
and offending state to bring its domestic law into compliance. Although the
dispute settling understanding (DSU) offers a unified resolution system that is
applicable across all sectors and boarders all covered WTO agreements, there
are specialised rules which arise under them. These are

i. Textile agreements

ii. Anti-dumping subsidies and countervailing measure

iii. Technical barriers to trade (TBT)

However, the point is not to pass judgement. The priority is to settle disputes,
through consultations if possible. By January 2008, only about 136 of the 369
cases had reached the full panel process. Most of the rest have either been
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notified as settled “out of court” or remain in a prolonged consultation phase
some since 1995. There are seven stages in the resolution of disputes under the
WTO.

Phase I

1. Consultation (up to 60 days)

Any WTO member who believes that the measure of another member is not in
conformity with what is in the covered agreement may call for consultation
over those measures. The respondent has 10 days to reply and must agree to
enter into consultation within 30 days. If the respondent does not enter into
consultation within 30 days, party seeking consultation can immediately
request establishment of a panel under dispute settlement understanding
(DSU).

Once consultation begin the parties have 60 days to achieve settlement. This is
done to seek a positive solution to the dispute. If such a settlement cannot be
obtained after 60 days of consultation, the party may request the establishment
of the DSU. Third parties with an interest in the matter of consultation may
seek to be included. If such is rejected, they may seek their own consultation
with the other member.

Alternative consultation may be provided through the use of conciliation,

mediation, arbitration, negotiation or through good offices where parties agree
to use the alternative process. At all stages, the WTO director-general is
available to offer his good offices, to mediate or to help achieve a conciliation.

Phase II

2. Panel establishment (investigation and report)

If consultations fail, the complaining country can ask for a panel to be

appointed. The country “in the dock” can block the creation of a panel once,

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but when the Dispute Settlement Body meets for a second time, the
appointment can no longer be blocked (unless there is a consensus against
appointing the panel). The parties seeking the consultation may request the
DSB to investigate, report and resolve the dispute.

The DSB must establish such a panel upon the request unless the DSB
expressly by consensus decides not to establish a panel. The WTO maintains a
list of well qualified persons who are available to serve as panelist. Panels are
like tribunals. But unlike in a normal tribunal, the panellists are usually chosen
in consultation with the countries in dispute. Only if the two sides cannot agree
does the WTO director-general appoint them.

Panels consist of three (possibly five) experts from different countries who
examine the evidence and decide who is right and who is wrong. The panel’s
report is passed to the Dispute Settlement Body, which can only reject the
report by consensus. Panellists for each case can be chosen from a permanent
list of well-qualified candidates, or from elsewhere. They serve in their
individual capacities. They cannot receive instructions from any government.

Case brought may involve violations of covered agreements or non-violation,

nullification an impairment of benefits under a covered agreement. Prima facie
case of non-impairment arises when one member infringes upon the obligation
assumed under a covered agreement. Decisions in panel reports are final as to
issues of facts. The decision in panel reports is not final as to the issue of law.
The panel decision on issue of law is subject review by the appellant body.

Phase III

Appellants review of panel reports

Either side can appeal a panel’s ruling. Sometimes both sides do so. Appeals
have to be based on points of law such as legal interpretation they cannot re-
examine existing evidence or examine new issues. This means that the review

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of the panel is available at the request of any available party unless the DSB
rejects.

The appellant body is the new institution. GATT 1947 had nothing comparable
to it. Each appeal is heard by three members of a permanent seven-member
Appellate Body set up by the Dispute Settlement Body and broadly
representing the range of WTO membership. It is composed of seven member
or judges. Members of the Appellate Body have four-year terms. They have to
be individuals with recognized standing in the field of law and international
trade, not affiliated with any government.

The review is performed by three judges out of the seven. The parties do not
have any influence on which judges are selected to review a particular panel
report. There is a schedule created by the appellant body itself for the rotation
for the sitting of each judge. The appeal can uphold, modify or reverse the
panel’s legal findings and conclusions. Normally appeals should not last more
than 60 days, with an absolute maximum of 90 days. Appellant Body decisions
are anonymous. Appellant body decisions do not present binding decision.

Phase IV

iv. Adoption of panel and appellant decision

The DSB must adopt and the parties must unconditionally accept, the
Appellate body report unless the DSB decides by consensus not to adopt the
Appellate body within 30 days following its circulation to members.

Whether there was a consensus against the adoption of the report in question.
Nowadays, he or she simply gives the floor to the parties to the dispute and
then to other Members to express their opinions. It sometimes happens that a
member urges the other Members to oppose the report, but this typically has
no consequence because a rejection of the report would require consensus of
all the Members present at the meeting. The DSB chairperson, therefore,

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merely states that the DSB takes note of all the statements and adopts the
report.

If there is no appeal, the dispute proceeds immediately to the implementation

phase after the DSB has adopted the panel report. There are special and
additional rules with respect to the adoption of panel reports in the subsidies
and countervailing measures Agreement.

In disputes regarding both prohibited and actionable subsidies, the DSB must
adopt the report within 30 days of its circulation to all Members, unless it
decides by consensus not to adopt it or unless one of the parties notifies the
DSB of its decision to appeal.

Phase V

v. Implementation of decision adopted

With WTO law is not part of the mandate of the arbitrator under the DSU. If
there are several possible ways to bring about conformity, the implementing
Member has the discretion to choose among these options. Whether the chosen
option truly achieves full conformity is to be decided according to the
procedure of Article 21.5 of the DSU. For those reasons, arbitrators determine
the reasonable period of time on the basis of the proposal of the implementing
Member.

The reasonable periods of time awarded by arbitrators to date have ranged

from six to fifteen months. Those that have been agreed between the parties
have ranged from four to eighteen months.

In non-violation complaints, Article 26.1(c) of the DSU stipulates that the

arbitrator acting under Article 21.3(c) “upon request of either party, may
include a determination of the level of benefits which have been nullified or
impaired, and may also suggest ways and means of reaching a mutually

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satisfactory adjustment; such suggestions shall not be binding upon the parties
to the dispute.”

Article 21.3(c) of the DSU contemplates an arbitration award to be issued within

90 days of the adoption of the panel (and Appellate Body) report, but this time-
period is nearly always too short, also because the request for arbitration is
often made at a late stage. Thus, the parties have mostly agreed to extend the
deadline. Parties may also ask the arbitrator to suspend the procedure or
withdraw the request for arbitration in view of a mutually agreed solution on
the issue of implementation.

Non implementation

If the losing Member fails to bring its measure into conformity with its (WTO)
obligations within the reasonable period of time, the prevailing complainant is
entitled to resort to temporary measures, which can be either compensation or
the suspension of WTO obligations, as discussed below. Neither of these
temporary measures is preferred to full implementation of DSB
recommendations.

Phase VI

vi. Settlement by compensation

If the implementing Member does not achieve full compliance by the end of
the reasonable period of time, it has to enter into negotiations with the
complaining party with a view to agreeing a mutually acceptable
compensation. This compensation does not mean monetary payment; rather,
the respondent is supposed to offer a benefit, for example a tariff reduction,
which is equivalent to the benefit which the respondent has nullified or
impaired by applying its measure.

The parties to the dispute must agree upon the compensation, which must also
be consistent with the covered agreements. This latter requirement is probably
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one of the reasons why WTO members have hardly ever been able to work out
compensation in cases reaching this stage. Conformity with the covered
agreements implies, notably, consistency with the most-favoured-nation
obligations (Article I of GATT 1994, among others).

Therefore, WTO Members other than the complainant would also benefit, if
compensation is offered for instance in the form of a tariff reduction. This
makes compensation less attractive to both the respondent, for whom this
raises the price, and the complainant, who does not get an exclusive benefit.
These obstacles could to some extent be overcome, however, if the parties were
to select a trade benefit (an example tariff reduction) in a sector of particular
export interest to the complainant and other Members had little export interest
in that sector or product.

Phase VII

vii. Authorised retaliation

Particularly for smaller and developing country Members, the possibility of

suspending obligations under a different sector or different agreement can be
quite important.

First, smaller and developing countries do not always import goods and
services or intellectual property rights (in sufficient quantities) in the same
sectors as those in which the violation or other nullification or impairment took
place. This may make it impossible to suspend obligations at a level equivalent
to that of the nullification or impairment committed by the respondent, unless
the complainant can suspend obligations in a different sector or under a
different agreement.

Second, the suspension in the same sector or under the same agreement could
be ineffective or impracticable because the bilateral trade relationship is
asymmetrical in that it is relatively important for the complainant and

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relatively unimportant for the respondent, particularly if the latter is a big
trading nation. In that case, the effects of the suspension of obligations and the
imposition of trade barriers might not even be visible in the respondent’s trade
statistics.

Third, it might be economically unaffordable for the developing country

complainant to impose trade barriers against imports following the suspension
of obligations under GATT 1994 or GATS because this would reduce the
supply and or increase the price of these imports on which the complainant’s
producers and consumers might depend. For these reasons, it is important for
developing countries to be able to use methods of suspending obligations that
do not result in trade barriers. Suspending obligations under the TRIPS
Agreement is an example of how to do so.

3.7 DEVELOPMENT AND TRADE

Over three-quarters of World Trade Organization members are developing or
least-developed countries (LDC). All World Trade Organization agreements
contain special provision for them, including longer time periods to implement
agreements and commitments, measures to increase their trading
opportunities, provisions requiring all World Trade Organization members to
safeguard their trade interests, and support to help them build the
infrastructure for World Trade Organization work, handle disputes, and
implement technical standards.

The 2001 Ministerial Conference in Doha set out tasks, including negotiations,
for a wide range of issues concerning developing countries. Some people call
the new negotiations the Doha Development Round.

Before that, in 1997, a high-level meeting on trade initiatives and technical

assistance for least-developed countries resulted in an “integrated framework”
involving six intergovernmental agencies, to help least-developed countries

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increase their ability to trade, and some additional preferential market access
agreements. A World Trade Organization Committee on Trade and
Development, assisted by a Sub-Committee on Least-Developed Countries,
looks at developing countries’ special needs. Its responsibility includes
implementation of the agreements, technical cooperation, and the increased
participation of developing countries in the global trading system.

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4 INTERNATIONAL FINANCIAL INSTITUTIONS

4.1 INTERNATIONAL MONETARY FUND (IMF)

The IMF is an independent international organization. It is a cooperative of 185
member countries, whose objective is to promote world economic stability and
growth. The member countries are the shareholders of the cooperative,
providing the capital of the IMF through quota subscriptions. In return, the
IMF provides its members with macroeconomic policy advice, financing in
times of balance of payments need, and technical assistance and training to
improve national economic management.

Origin of the IMF

The origin of the IMF lies in the experience of countries during the inter-war
period, including the Great Depression. In the 1920s and 1930s, many countries
attempted to maintain domestic income in the face of shrinking markets
through competitive devaluation of their currencies and resort to exchange
and trade restrictions. Such measures could achieve their objectives only by
aggravating the difficulties of trading partners who, in self-defence, were led
to adopt similar policies, leading to a destructive vicious cycle. There was
growing recognition of the largely self-defeating nature of these policies at the
country level and the increasing global welfare losses, resulting in a widening
acceptance of the need for a globally agreed code of conduct in international
trade and financial matters.

The IMF is one of several autonomous organizations designated by the United

Nations (UN) as “Specialized Agencies,” with which the UN has established
working relationships. The IMF is a permanent observer at the UN. The
Articles of Agreement that created the IMF and govern its operations were
adopted at the United Nations Monetary and Financial Conference in Bretton
Woods, New Hampshire, on July 22, 1944, and entered into force on December
27, 1945. Article I set out the mandate of the IMF as follows:
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 a. To promote international monetary cooperation through a permanent
institution which provides the machinery for consultation and
collaboration on international monetary problems;

b. To facilitate the expansion and balanced growth of international trade,

and to contribute thereby to the promotion and maintenance of high
levels of employment and real income and to the development of the
productive resources of all members as primary objectives of economic
policy;

c. To promote exchange stability, to maintain orderly exchange

arrangements among members, and to avoid competitive exchange
depreciation;

d. To assist in the establishment of a multilateral system of payments in

respect of current transactions between members and in the
elimination of foreign exchange restrictions which hamper the growth
of world trade;

e. To give confidence to members by making the general resources of the

IMF temporarily available to them under adequate safeguards, thus
providing them with opportunity to correct maladjustments in their
balance of payments without resorting to measures destructive of
national or international prosperity; and

f. To shorten the duration and lessen the degree of disequilibrium in the

international balances of payments of members.

This mandate gives the IMF its unique character as an international monetary
institution, with broad oversight responsibilities for the orderly functioning
and development of the international monetary and financial system.

The IMF is best known as a financial institution that provides resources to

member countries experiencing temporary balance of payments problems on
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the condition that the borrower undertake economic adjustment policies to
address these difficulties. In recent years, IMF lending increased dramatically
as the institution played a central role in resolving a series of economic and
financial crises in emerging market countries in Asia, Latin America, and
Europe.

The IMF is also actively engaged in promoting economic growth and poverty
reduction in its poorer members by providing financing on concessional terms
in support of efforts to stabilize economies, implement structural reforms, and
achieve sustainable external debt positions. Often missing from the public
perception of the IMF, however, is the broader context in which this financing
takes place.

Functions of the IMF

The IMF is unique among intergovernmental organizations in its combination

of regulatory, consultative, and financial functions, which derive from the
purposes for which the institution was established.1 Supporting the IMF’s
legal mandate are a variety of voluntary service and informational functions
that facilitate the implementation of its official tasks:

1. Regulatory functions

IMF include formal jurisdiction over measures that have the effect of
restricting payments and transfers for current international transactions.
Member countries are required to provide the IMF with such information and
statistical data as it deems necessary for its activities, including the minimum
necessary for the effective discharge of its duties, as outlined in the Articles of
Agreement (Article VIII).

2. Consultative functions

This stem primarily from the IMF’s responsibility for overseeing the
international monetary system and exercising firm surveillance over the

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policies of its members, a task entrusted to the IMF following the collapse of
the Bretton Woods fixed exchange rate system in the early 1970s. These
activities include regular monitoring and peer review by other members of
economic and financial developments and policies in each of its members
under Article IV of the Articles of Agreement, ongoing reviews of world
economic and financial market developments, and semi-annual consideration
of the world economic outlook (Article IV).

3. Financial functions

Financial functions of the IMF are the subject of this pamphlet. They range
from the provision of temporary balance of payments financing and
administration of the SDR system to the extension of longer-term concessional
lending and debt relief to the poorest members (Articles V and VI).

4. Service and supplementary informational functions

These are voluntary, in contrast to the obligatory nature of members’

participation in the above three areas of the IMF operations. These supportive
functions include a wide-ranging program of technical assistance and
encompass an array of statistical and nonstatistical activities, most notably the
collection and dissemination of economic and financial data on its member
countries, reporting on its country and global surveillance assessments, and
disseminating its policy and research findings. In many cases, the IMF is the
chief source of reliable, up-to-date economic information on individual
countries.

Increasingly, the institution is also called on by its members to develop and

monitor adherence to standards and best practices in several areas, including
timely country economic and financial statistics, monetary and fiscal
transparency, the assessment of financial sector soundness, and the promotion
of good governance.

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The IMF is therefore concerned not only with the problems of individual
countries but also with the working of the international monetary system as a
whole. Its activities are aimed at promoting policies and strategies through
which its members can work together to ensure a stable world financial system
and sustainable economic growth.

The IMF provides a forum for international monetary cooperation, and thus
for an orderly evolution of the system, and it subjects a wide area of
international monetary affairs to the covenants of law, moral suasion, and
understandings. The IMF must also stand ready to deal with crisis situations,
not only those affecting individual members but also those representing
threats to the international monetary system.

5. Combating Poverty in Low-Income Countries

The IMF provides concessional loans to low-income member countries to help

support these countries’ efforts to eradicate poverty. In this venture, the IMF
works closely with the World Bank and other development partners. In this
area the IMF also plays a critical catalytic role to mobilize external financing
and donor support for the countries’ balance of payments and development
needs. The IMF also participates in two international initiatives to provide debt
relief: the Heavily Indebted Poor Countries (HIPC) Initiative and the
Multilateral Debt Relief Initiative (MDRI).

6. Mobilizing External Financing

IMF endorsement of a country’s policies serves as an important catalyst for

mobilizing resources from bilateral and multilateral lenders and donors. They
rely on an IMF endorsement of a country’s economic policies or might even
require a formal IMF supported economic program before committing or
disbursing their own resources to that country or granting debt relief.

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IMF policy assessments and recommendations also provide important signals
to investors and financial markets regarding a country’s economic future, and
impact on investor and market confidence in the economy.

7. Dissemination of Information and Research

The IMF is a premier source for economic analysis of its member countries’
economic policies and statistical information. Information is disseminated
through its numerous economic reports and research studies on member
countries, as well as specialized statistical publications. The IMF also conducts
research in areas relevant to its mandate and operations, mainly to improve its
economic analysis and its advice to member countries. The results of this
research are disseminated through books, IMF and academic journals and
working papers, occasional papers, and the internet.

8. Financing Temporary Balance of Payments Needs

The Articles of Agreement enable the IMF to lend to member countries that
have a balance of payments need to provide temporary respite and enable
countries to put in place orderly corrective measures and avoid a disorderly
adjustment of the external imbalance. Such lending is usually undertaken in
the context of an economic adjustment program implemented by the
borrowing country to correct the balance of payments difficulties, which also
safeguards IMF resources. In addition to providing direct financing to its
member countries, the IMF plays an important catalytic role in helping
member countries to mobilize external financing for their balance of payments
needs.

Sources of IMF Financing

a. Quota Subscriptions

The primary source of the IMF’s loanable funds is quota subscriptions by

members. a quarter of the quota subscription is normally paid in reserve assets

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(SDRs or currencies of other members deemed by the IMF to be readily
available and accepted for international payments), and the balance is paid in
the member’s own currency. Members’ currencies are deemed usable or
unusable. Usable currencies are those of member countries whose external
position is strong enough for them to be called upon to finance IMF credit to
other members. The IMF uses its pool of usable currencies and SDR holdings
to extend credit to member countries. Since some currencies are unusable, this
pool of loanable funds is less than the sum total of quota subscriptions.

Quota-based funds are held in the IMF’s General Resources Account (GRA).
Any member can request a loan from the pool of quota resources at any time
and such a request will be granted if certain criteria are satisfied.

b. Borrowing

The Articles of Agreement (Article VII, Section 1) allow the IMF to replenish
its holdings of any member’s currency through borrowing, when needed in
connection with its transactions. Such borrowing is undertaken on a temporary
basis and is subject to continuous monitoring and a regular review of the IMF’s
liquidity by the Executive Board.

i. Borrowing to Supplement Quota-Based Resources

The IMF currently maintains two standing borrowing arrangements with

official lenders, the General Arrangements to Borrow (GAB, effective since
October 1962) and the New Arrangements to Borrow (NAB, effective since
November 1998). The GAB and NAB supplement the quota-based, non-
concessional lending resources in the GRA to help the IMF forestall or cope
with an impairment of the international monetary system. Borrowing takes
place at market-related interest rates. In the past there have been several other
borrowing arrangements with official creditors under which the IMF
borrowed extensively when payments imbalances were large. The IMF can
borrow in private markets, if necessary, but to date has never done so
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 ii. Borrowing to Finance Concessional Lending

The IMF borrows from official bilateral sources to finance concessional lending
to low-income countries under the Poverty Reduction and Growth Facility
(PRGF) and the Exogenous Shocks Facility (ESF), which are administered by
the IMF through the PRGF-ESF Trust. Borrowing for PRGF-ESF lending
usually takes place at market interest rates. However, since these funds are on-
lent to low-income borrowers at a concessional rate of 0.5 percent (or interest-
free in the case of debt relief), the difference between the market borrowing
rate and the concessional lending rate has to be subsidized.

This subsidy is covered through bilateral grants (see below) or through IMF
borrowing from official bilateral sources at below-market interest rates. In the
latter case, the difference between the market interest rate and the below-
market rate paid to the creditor is the creditor’s contribution to the interest
subsidy.

c. Grants for Subsidized Interest Rates and Debt Relief

Bilateral grants help finance the interest subsidy on concessional loans to low-
income countries, including PRGF/ESF loans and loans to low-income
countries that access the IMF's emergency assistance. While the loans are made
from the IMF’s quota based GRA resources and therefore carry no concessional
interest rates, a concessionally element is incorporated through an interest rate
subsidy. The interest subsidy is the difference between the IMF’s basic GRA
rate of charge and the effective concessional lending rate of 0.5 percent.
Bilateral grants also partly finance the IMF’s contribution to debt relief under
the HIPC Initiative, the remainder of which was financed through gold sales.

d. Gold Sales

The IMF acquired virtually all of its holdings of gold prior to the Second
Amendment of the Articles of Agreement in 1978. Prior to this Amendment,

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gold played a central role in the functioning of the international monetary
system: the first 25 percent of members’ quota subscriptions and quota
increases was normally paid in gold, interest on outstanding IMF credit was
normally paid in gold, and members could also use gold to purchase reserve
currencies or repay debt to the IMF. The Second Amendment severely limited
the use of gold in IMF transactions: the IMF may only sell gold at prevailing
market prices and accept gold in the discharge of a member’s obligations to
the IMF; no other transactions in gold. Also, to help finance its contribution to
debt relief under the HIPC Initiative, the IMF conducted a series of off-market
transactions in gold in 1999-2000 that left its gold holdings unchanged.

The IMF has sold gold on various occasions in the past to support its
operations, mostly prior to 1980. Since gold is valued at historical cost in the
IMF’s accounts and the market value is usually substantially higher than the
book value, the sale of gold results in a profit for the IMF. These profits were
placed in a Special Disbursement Account, from where they were transferred
to other special-purpose accounts, in particular for financial assistance to low-
income countries, including debt relief.

Financial organization and operations of the IMF

The IMF is governed by a Board of Governors, an Executive Board, and a

Managing Director supported by three Deputy Managing Directors. Two
advisory bodies, the International Monetary and Financial Committee and the
Development Committee, provide a bridge between the Board of Governors
and the Executive Board.

1. Board of Governors

The Board of Governors is the highest decision-making body of the IMF. It

consists of one governor and one alternate governor for each member country.
The governor is appointed by the member country and is usually the minister
of finance or the head of the central bank. While the Board of Governors has
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delegated most of its powers to the IMF's Executive Board, it retains the right
to approve quota increases, special drawing right (SDR) allocations, the
admittance of new members, compulsory withdrawal of members, and
amendments to the Articles of Agreement and By-Laws.

The Board of Governors also elects or appoints executive directors and is the
ultimate arbiter on issues related to the interpretation of the IMF's Articles of
Agreement. Voting by the Board of Governors usually takes place by mail-in
ballot.

The Boards of Governors of the IMF and the World Bank Group normally meet
once a year, during the IMF-World Bank Spring and Annual Meetings, to
discuss the work of their respective institutions. The Meetings, which take
place in September or October, have customarily been held in Washington for
two consecutive years and in another member country in the third year.

The Annual Meetings usually include two days of plenary sessions, during
which Governors consult with one another and present their countries' views
on current issues in international economics and finance. During the Meetings,
the Boards of Governors also make decisions on how current international
monetary issues should be addressed and approve corresponding resolutions.

The Annual Meetings are chaired by a Governor of the World Bank and the
IMF, with the chairmanship rotating among the membership each year. Every
two years, at the time of the Annual Meetings, the Governors of the Bank and
the Fund elect Executive Directors to their respective Executive Boards.

2. Ministerial Committees

The IMF Board of Governors is advised by two ministerial committees, the

International Monetary and Financial Committee (IMFC) and the
Development Committee.

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The IMFC has 24 members, drawn from the pool of 190 governors. Its structure
mirrors that of the Executive Board and its 24 constituencies. As such, the
IMFC represents all the member countries of the Fund.

The IMFC meets twice a year, during the Spring and Annual Meetings. The
Committee discusses matters of common concern affecting the global economy
and also advises the IMF on the direction its work. At the end of the Meetings,
the Committee issues a joint communiqué summarizing its views. These
communiqués provide guidance for the IMF's work program during the six
months leading up to the next Spring or Annual Meetings. There is no formal
voting at the IMFC, which operates by consensus.

The Development Committee is a joint committee, tasked with advising the

Boards of Governors of the IMF and the World Bank on issues related to
economic development in emerging and developing countries. The committee
has 24 members (usually ministers of finance or development). It represents
the full membership of the IMF and the World Bank and mainly serves as a
forum for building intergovernmental consensus on critical development
issues.

3. The Executive Board

The IMF’s 24-member Executive Board conducts the daily business of the IMF
and exercises the powers delegated to it by the Board of Governors, as well as
those powers conferred on it by the Articles of Agreement. With the entry into
force of the Board Reform Amendment on January 26, 2016, the all-elected
Executive Board has been in place since the subsequent election took effect on
November 1, 2016. Previously, the member countries holding the five largest
quotas were each entitled to appoint an Executive Director, while 19 were
elected by the remaining member countries.

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The Board discusses all aspects of the Fund’s work, from the IMF staff's annual
health checks of member countries' economies to policy issues relevant to the
global economy. The Board normally makes decisions based on consensus, but
sometimes formal votes are taken. The votes of each member equal the sum of
its basic votes (equally distributed among all members) and quota-based votes.
Therefore, a member’s quota determines its voting power. Following most
formal meetings, the Board summarizes its views in a document known as a
Summing Up. Informal meetings may also be held to discuss complex policy
issues at a preliminary stage.

To view Executive Board documents, which are available in the public domain,
visit the Executive Board Documents Collection via the IMF Archives
Catalogue. The Collection includes: agendas and minutes of Board meetings;
policy papers; staff reports; reports on missions to member countries; and
discussions of fiscal, monetary and economic policy issues.

Governance Reform

To be effective, the IMF must be seen as representing the interests of all its 190
member countries. For this reason, it is crucial that its governance structure
reflect today’s world economy. In 2010, the IMF agreed wide-ranging
governance reforms to reflect the increasing importance of emerging market
countries. The reforms also ensure that smaller developing countries will
retain their influence in the IMF.

Voting and Consensus Decision-Making

The Executive Board’s formal voting and decision-making system is described.

In practice, however, the Executive Board rarely takes a formal vote. Instead,
because the IMF is a cooperative institution, the Executive Board seeks to work
by consensus. Rule C-10 of the By-Laws, Rules, and Regulations stipulates that
“The Chairman shall ordinarily ascertain the sense of the meeting in lieu of a
formal vote.” Any Executive Director may request that a formal vote be taken;
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however, this rarely happens. The “sense of the meeting” is a position
supported by Executive Directors having sufficient votes to adopt that position
if a vote were taken.

Consensus decision-making by the Executive Board facilitates broad

participation by members in the governance of the IMF. Since a formal vote is
not taken, the official record of the meeting does not reflect individual voting
positions unless Executive Directors specifically request that their position be
recorded in the minutes. In recent years the IMF has been seeking ways of
strengthening the participation of developing countries and countries in
transition in decision-making at the institution Some Board decisions are taken
without a Board meeting. In these cases, decisions are circulated to the Board
for approval on a lapse-of-time basis.

Safeguards for IMF Resources (Chapter V)

The Articles of Agreement require the IMF to adopt policies that will establish
adequate safeguards for the temporary use of the organization’s resources.
These safeguards can be divided into those aimed at protecting currently
available or outstanding credit and those focused on limiting the duration of,
and clearing, overdue obligations. Safeguards to protect committed and
outstanding credit include:

▪ Limits on access to appropriate amounts of financing, with incentives

to contain excessively long and heavy use;

▪ Conditionality and program design;

▪ Safeguard’s assessments of central banks;

▪ Post-program monitoring;

▪ Measures to deal with misreporting; and

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 ▪ Voluntary services and supplementary information provided by the
IMF, including technical assistance; the transparency initiative,
comprising the establishment and monitoring of codes and standards,
including statistical standards and codes for monetary and fiscal
transparency and the assessment of financial sector soundness; and the
improved governance initiative.

Given the monetary character of the IMF and the need for its resources to
revolve, members with financial obligations to the institution must repay them
as they fall due so that these resources can be made available to other members.
Since the early 1980s, the overdue obligations that have emerged have been a
matter of concern because they weaken the IMF’s liquidity position and
impose a cost on other members.

Safeguards put in place to deal with overdue obligations to the IMF include
the following two broad areas:

a. Policies to assist members in clearing arrears to the IMF, including:

▪ the cooperative strategy,

▪ consisting of three components: prevention of arrears,

collaboration in clearing arrears, and remedial measures which
are intended to have a deterrent effect, for countries that do not
cooperate actively; and —the rights approach, which allows a
member in arrears to accumulate “rights” to future
disbursements from the IMF

b. Measures to protect the IMF’s financial position.

4.1.1 Combating poverty in low-income countries

A central objective of the IMF in low-income countries is to support sustained
poverty reduction through policies that promote economic growth,
employment generation, and targeted assistance to the poor. This follows from
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the IMF’s mandate to contribute “to the promotion and maintenance of high
levels of employment and real income and to the development of the
productive resources of all members as primary objectives of economic
policy.” In doing so, the IMF works in four main broad areas—policy advice
and program design, capacity building, financial support and debt relief, and
coordinated international efforts.

The IMF focuses on its core areas of responsibility and expertise, where it has
a clear comparative advantage, namely: the pursuit of stable macroeconomic
conditions and macro-relevant structural reforms, with supporting financial
and technical assistance. In its work in low-income countries, the IMF works
in close collaboration with other development partners, particularly the World
Bank, which is the lead institution for poverty reduction.

The IMF, in conjunction with other development partners, has endorsed a two-
pillar strategy for tackling poverty in low-income countries.

▪ First, low-income countries must be proactive in implementing sound

policies, strengthening institutions, and improving governance.

▪ Second, for those countries that implement sound policies and reforms,
the international community must provide strong support through
greater trade opportunities and increased and better-delivered aid
flows.

However, the IMF and the World Bank have suggested the following as
possible core elements of a Poverty Reduction Strategy Plan (PRSP):

a. A comprehensive diagnostic of the nature, causes, and incidence of

poverty;

b. A clear and detailed statement of the medium- and long-term outcome-

oriented targets for the country’s poverty reduction strategy, and the

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 macroeconomic, structural, and social policies that together comprise a
comprehensive strategy for achieving these outcomes;

c. A description of the framework and mechanisms for monitoring

implementation, including the extent and planned development of
participatory processes designed to strengthen accountability, the
indicators to be monitored, and the planned frequency of reporting and
monitoring; and

d. An assessment of the external financial and technical assistance that

would be required to achieve the objectives of the poverty reduction
strategy.

4.1.2 Heavily Indebted Poor Countries (HIPC) Initiative

The HIPC Initiative, established in 1996, provides exceptional assistance to
eligible member countries to reduce their external public debt burdens to
sustainable levels, thereby enabling them to service their external debts
without the need for further debt relief and without compromising poverty
reduction efforts or economic growth. It is a comprehensive approach to debt
relief which involves other multilateral creditors as well as official bilateral and
commercial creditors.

The IMF’s launching of the HIPC Initiative is consistent with its mandate to
provide balance of payments assistance as well as promote economic growth
in member countries. In September 1999, the IMF and the World Bank agreed
to strengthen the HIPC Initiative to provide broader, deeper, and faster debt
relief by lowering the threshold and the performance period requirement,
thereby increasing also the number of eligible countries. At the same time, the
links between debt relief and poverty-reduction efforts were strengthened
through the PSRP framework.

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A topping-up decision can also be taken, as is discussed later, but, briefly,
involves the disbursement of assistance over and above that which was
committed at the decision point. The debt relief provided to a member at the
completion point is irrevocable and is provided with no further policy
conditionality.

Eligibility Requirements for the HIPC Initiative

IMF assistance under the HIPC Initiative is limited to countries that:

i. are Portable Retirement Gratuity Fund eligible;

ii. are pursuing a program of adjustment and reform supported by the

IMF through a PRGF or Extended Arrangement, a Stand-By
Arrangement, a decision on rights of accumulation, or Emergency Post
Conflict Assistance; and

iii. have received, or are eligible to receive, assistance to the full extent
available under traditional debt relief mechanisms. Even after the full
application of these traditional debt relief mechanisms, the member’s
external debt situation, based on end-2004 data, is unsustainable, as
defined under the HIPC Initiative.

To qualify for assistance (for example to reach the decision point) under the
Initiative, an eligible member must have:

i. an unsustainable external debt, even after the application of traditional

debt relief mechanisms, based on the latest available external debt data;

ii. a satisfactory poverty reduction strategy set out in an PRS document

issued to the Executive Board within the previous 18 months; • not
agreed on an exit operation with Paris club creditors on Naples terms
after September 1999;

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 iii. established a track record of strong policy performance under IMF-
supported programs, covering macroeconomic policies and structural
and social policy reforms; and

iv. a commitment from all other creditors (holding debt claims above a
certain minimum amount) to participate in the Initiative.

4.1.3 Financial Reporting and Audit Requirements

The IMF’s By-Laws mandate that its accounts and statements provide a “true
and fair view” of its financial position. The IMF prepares its financial
statements in accordance with International Accounting Standards (IAS) but
is not bound by specific legal provisions or accounting pronouncements in
effect in individual member countries. The IMF is required to publish an
Annual Report containing audited statements of its accounts and to issue
summary statements of its holdings of SDRs, gold, and members’ currencies
at intervals of three months or less. As part of its financial reporting, the IMF
makes extensive information on financial and other activities available to the
public on its website (http://www.imf.org) in order to provide a timely and
comprehensive view of the IMF’s financial position. The IMF’s financial year
covers the period from May 1 through April 30.

The IMF’s finances are analogous to those of other financial institutions, and
comparison between the IMF and such institutions has been made easier by
recent changes in the presentation of the IMF’s financial statements. A typical
financial institution holds liquid assets and loan claims and securities among
its assets, financed by its deposit (monetary) liabilities and capital resources.
Similarly, in the GRA the IMF holds assets (currencies, SDRs, and gold) and
credit outstanding to its members, and issues monetary liabilities (referred to
as reserve tranche positions), while its capital includes members’ quota
subscriptions. Similar practices are followed in the financial statements of the

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SDR Department and of the PRGF and PRGF-HIPC Trusts in order to make
their financial operations transparent.

The audit procedures in place call for an external audit of the IMF’s accounts
and activities. The external audit of the financial statements of the IMF’s
General Department, SDR Department, Administered Accounts, and Staff
Retirement Plans is conducted annually by an external audit firm selected by
the Executive Board. The external audit is conducted in accordance with
International Standards on Auditing (ISA) under the general oversight of an
External Audit Committee (EAC).

The EAC consists of three persons, each representing a different member

country, who are selected by the Executive Board for an initial term of three
years (EAC members may be reappointed for an additional three-year
period). The Executive Board approves the terms of reference of the EAC, but
the EAC may recommend changes to the terms of reference for the approval
of the Executive Board. At least one person on the EAC must be selected from
one of the six largest quota holders of the IMF.

The nominees must possess the qualifications required to carry out the
oversight of the IMF’s annual audit and the nominees are therefore typically
experienced independent auditors or auditors in public service. The EAC
elects one of its members as chairman, determines its own procedures, and is
otherwise independent of the management of the IMF in overseeing the
annual audit.

The audit committee is responsible for transmitting the audit reports issued
by the external audit firm to the Board of Governors through the IMF’s
Managing Director and the Executive Board. The chairman of the EAC is also
required to brief the Executive Board on the work of the EAC at the
conclusion of the annual audit.

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Collaboration with the world bank and the world Trade organization

The original Bretton Woods conference called for the creation of three
international organizations. While the IMF and the World Bank were created
shortly after the conference, an international organization devoted to the
facilitation of international trade was only created in 1996, when the World
Trade Organization (WTO) was established incorporating the General
Agreement on Tariffs and Trade (GATT). While the IMF cooperates with a
large number of international organizations, including all the regional
development banks, the common origin and complementary mandates of the
IMF, World Bank, and WTO led to intense and well-defined forms of
cooperation.

1. Collaboration with the World Bank

Areas of shared responsibility include tax policy and administration, financial

sector work, trade policy, public expenditure policy and administration, public
debt management, and the establishment of an environment conducive to
private sector development.

To oversee and strengthen collaboration in their work on the financial sector

and on low-income countries, the IMF and World Bank set up a Financial
Sector Liaison Committee (FSLC) in September 1998 and a Joint HIPC/PRSP
Implementation Committee (JIC) in April 2000. The committees work to
resolve differences of view between the staff of two institutions, ensure
seamless cooperation, and coordinate work programs and the production of
reports and briefings to the Executive Boards of the two institutions. The FSLC
has played a critical role in coordinating and monitoring FSAP exercises, as
well as devising measures to improve the program in recent years. A
forthcoming report of the External Review Committee may make
recommendations on the division of labour.

Principles of IMF-World Bank Collaboration

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The 1989 Concordat and the 1998 Report of the Managing Director and the
President set out the broad principles that should guide collaboration between
the IMF and the World Bank.

▪ Countries in which both institutions are actively involved should have

a clear understanding of which institution has primary responsibility
in any given area of policy advice and reform.

▪ Before finalizing its position on key elements of a country’s policies and

reform agenda, each institution will solicit the views of the other and
share its own thinking at as early a stage as feasible. When there are
differences of view between the two institutions about policies and
priorities in countries where both are involved, the disagreement
should be resolved at the staff level or raised to the level of senior
management for resolution.

If the issue cannot be resolved at the management level before a World Bank
lending operation or IMF-supported program is to be presented to the
respective Executive Board, then management would highlight the
disagreement to the Board prior to the Board discussion, and at the time of
meeting, indicate the nature of the disagreement and ensure that staff from the
other institution are present at the Executive Board to present their views.

▪ Where a country’s program supported by one institution includes

macroeconomic and structural measures which fall within the other
institution’s areas of primary responsibility, advice to the authorities
on the design of measures in the country’s program and the subsequent
monitoring should be provided by the institution with primary
responsibility. Program reviews by each institution should be closely
coordinated to the maximum extent possible.

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 ▪ Integration and coordination of the views of either institution requires
timely input from the other institution. In situations where either
institution does not have the capacity or is unable to provide policy
advice and expertise, whichever institution can provide input should
do so in order to ensure that the country’s program does not suffer. At
the same time, the institution that is unable to provide input would
review its work priorities with a view to better aligning them to the
requirements of the country’s program.

▪ The daily interactions and ad hoc contacts involving management and

staff, and the monthly as well as ad hoc meetings between the
Managing Director and the President, are supplemented with regular
meetings of the senior staff of each institution. In addition, meetings
are held to review the strategies of each institution for countries of
common concern.

▪ Cross-participation in each institution’s missions and parallel missions

are effective ways to facilitate the coordination and timely integration
of macroeconomic and structural policies in countries’ programs and
reform agendas. To be most effective, in cross-participation and joint
missions the participating Bank or IMF staff should have a clear
assignment of responsibilities.

2. Collaboration with the World Trade Organization

The IMF and the WTO work together on many levels, with the aim of ensuring
greater coherence in global economic policymaking and reflecting the
underlying common policy goal of limiting the use of restrictions on the
international flow of goods and services, which can be affected through
exchange or trade restrictions. On an operational level, the IMF established the

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Trade Integration Mechanism (TIM) in April 2004 to support progress under
the WTO’s Doha round of trade talks

The IMF has observer status at the WTO, and participates actively in many
meetings of WTO committees, working groups, and bodies. For this purpose,
the IMF maintains an office in Geneva to facilitate the regular interaction with
the WTO. Trade policy issues feature prominently in IMF program and
surveillance work wherever macro-relevant. Equally, IMF surveillance
reports, including assessments of exchange rate policies, are important inputs
to the WTO’s Trade Policy Review Mechanism (TPRM) and the periodic
reports on member countries’ trade policies (Trade Policy Reviews).

Consultations

The WTO is required to consult the IMF when it deals with issues concerning
monetary reserves, balance of payments, and foreign exchange arrangements.
For example, WTO agreements allow countries to apply trade restrictions in
the event of balance of payments difficulties. The WTO’s Balance of Payments
Committee bases its assessments of restrictions on the IMF’s determination of
a member’s balance of payments situation.

Trade Liberalization in Least-Developed Countries

The IMF and the WTO work together in the Integrated Framework for Trade-
Related Technical Assistance to Least-Developed Countries that was put in
place in 1997. The Integrated Framework aims at strengthening the capacity of
these countries to formulate trade policy, negotiate trade agreements, and
tackle production challenges in their domestic economies. In addition, the
Integrated Framework seeks to ensure that poorer member countries
incorporate appropriate trade reforms into their Poverty Reduction Strategy
documents, which form the basis for concessional support by the IMF.

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4.2 THE WORLD BANK
Conceived in 1944 to reconstruct war-torn Europe, the World Bank Group has
evolved into one of the world’s largest sources of development assistance, with
a mission of fighting poverty with passion by helping people help themselves.

The term World Bank was first used in reference to IBRD in an article in the
Economist on July 22, 1944, in a report on the Bretton Woods Conference. The
first meeting of the Boards of Governors of IBRD and the IMF, which was held
in Savannah, Georgia, in March 1946, was officially called the “World Fund
and Bank Inaugural Meeting,” and several news accounts of this conference,
including one in the Washington Post, used the term World Bank. What began
as a nickname became official shorthand for IBRD and IDA in 1975.

4.2.1 The World Bank: IBRD and IDA

Through its loans, risk management, and other financial services; policy
advice; and technical assistance, the World Bank supports a broad range of
programs aimed at reducing poverty and improving living standards in the
developing world. It divides its work between IBRD, which works with
middle-income and creditworthy poorer countries, and IDA, which focuses
exclusively on the world’s poorest countries. Developing countries use IBRD’s
and IDA’s financial resources, skilled staff members, and extensive knowledge
base to achieve stable, sustainable, and equitable growth.

IBRD and IDA share staff and headquarters, report to the same senior
management, and use the same standards when evaluating projects. Some
countries borrow from both institutions. For all its clients, the Bank
emphasizes:

▪ investing in people, particularly through basic health and education;

▪ focusing on social development, inclusion, governance, and institution

building as key elements of poverty reduction;

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 ▪ strengthening governments’ ability to deliver quality services
efficiently and transparently;

▪ protecting the environment;

▪ supporting and encouraging private business development; and

▪ promoting reforms to create a stable macroeconomic environment

conducive to investment and long-term planning.

Bank programs which give high priority to sustainable social and human
development and to strengthened economic management place an emphasis
on inclusion, governance, and institution building. In addition, within the
international community, the Bank has helped build consensus around the
idea that developing countries must take the lead in creating their own
strategies for poverty reduction. It also plays a key role in collaborating with
countries to implement the Millennium Development Goals (MDGs), which
the United Nations (UN) and the broader international community seek to
achieve by 2015.

In conjunction with the International Finance Corporation, the Bank is also

working with its member countries to strengthen and sustain the fundamental
conditions for attracting and retaining private investment. With Bank support
both lending and advice governments are reforming their overall economies
and strengthening their financial systems. Investments in human resources,
infrastructure, and environmental protection also help enhance the
attractiveness and productivity of private investment.

The International Bank for Reconstruction and Development (IBRD)

IBRD is the original institution of the World Bank Group. When it was
established in 1944, its first task was to help Europe recover from World War
II.

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Today, IBRD plays an important role in improving living standards by
providing its borrowing member countries—middle-income and creditworthy
poorer countries with loans, guarantees, risk management, and other financial
services, as well as analytical and advisory services. It provides these client
countries with risk management tools and access to capital on favourable
terms in larger volumes, with longer maturities, and in a more sustainable
manner than the market in several important ways:

▪ By supporting long-term human and social development needs those

private creditors do not finance.

▪ By preserving borrowers’ financial strength through support during

crisis periods, which is when poor people are most adversely affected

▪ By using the leverage of financing to promote key policy and

institutional reforms (such as safety net or anticorruption reforms).

▪ By creating a favourable investment climate to catalyse the provision

of private capital.

▪ By providing financial support (in the form of grants made available

from IBRD’s net income) in areas critical to the well-being of poor
people in all countries.

IBRD is structured like a cooperative that is owned and operated for the benefit
of its 187 member countries. Shareholders of IBRD are sovereign governments,
and its borrowing members, through their representatives on the Board of
Executive Directors, have a voice in setting its policies and approving each
project and loan. IBRD finances its activities primarily by issuing AAA-rated
bonds to institutional and retail investors in global capital markets. IBRD’s
financial objective is not to maximize profit, but to earn adequate income to
ensure its financial strength and to sustain its development activities.

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Although IBRD earns a small margin on this lending, the greater proportion of
its income comes from investing its own capital. This capital consists of
reserves built up over the years and money paid in from the Bank’s 187-
member country shareholders. IBRD’s income also pays for World Bank
operating expenses and has contributed to IDA, debt relief, and other
development causes.

IBRD products and services

IBRD’s loans, guarantees, risk management products, and analytic and

advisory services may be packaged together or offered as stand-alone services.
Also, unlike commercial banks, IBRD is driven by development impact rather
than by profit maximization.

IBRD borrowers are typically middle-income countries that have some access
to private capital markets. Some countries eligible for IDA lending because of
low per capita incomes are also eligible for some IBRD borrowing because of
their creditworthiness. These countries are known as “blend” borrowers.
Hundreds of millions of the developing world’s poor, defined as those who
live on less than $2 a day, live not in the world’s very poorest countries, but in
middle-income countries, which are defi ned as those with an annual gross
national income per capita between $996 and $12,195 (as of April 2011).

Countries are considered to have graduated from IBRD borrowing when their
per capita income exceeds the level that the Bank classifies as middle income.
For more information, including a list of IBRD graduates. Even though IBRD
does not maximize profits, it has earned a positive operating income each year
since 1948. This income funds development activities and ensures financial
strength, enabling low-cost borrowing in capital markets and good terms for
borrowing clients.

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Organizing Principles within the World Bank Group

1. Vice Presidential Units

The vice-presidential unit (VPU) is the main organizational unit of the World
Bank (IBRD and IDA). Such units are commonly referred to as vice
presidencies. With a few exceptions that report directly to the president, each
of these units reports to a managing director or to the Bank Group’s chief
financial officer (CFO). In general, each vice presidency corresponds to a world
region, a thematic network, or a central function. The network vice
presidencies cut across the regional vice presidencies in the form of a matrix.
This arrangement helps ensure an appropriate mix of experience and
expertise. Consequently, a staff member may work for a network vice
presidency but could be deployed to support work in a specific region or
country.

The organizational structures of the other World Bank Group institutions have
varying degrees of similarity to the organization of IBRD and IDA, reflecting
the unique aspects of each institution’s mission.

2. Regional Vice Presidencies and Country Offices

Bank Group institutions have long organized much of their work around
major world regions and have carried it out through offices in member
countries. In recent years, decentralization has been a top priority, with the
goal being to bring a higher proportion of Bank Group staff members closer to
their clients. IBRD and IDA, for example, have relocated two thirds of their
country directors from Bank headquarters in Washington, D.C., to the fi eld
since the mid-1990s. The percentage of staff members who work in the fi eld
has also increased significantly. Similarly, more than 50 percent of IFC staff
members are located in country offices worldwide.

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The World Bank has six regional vice presidencies: Africa, East Asia and the
Pacific, Europe and Central Asia, Latin America and the Caribbean, the Middle
East and North Africa, and South Asia. The Bank operates offices in more than
100 member countries. As part of their work, country offices coordinate and
partner with member governments, representatives of civil society, and other
international donor agencies operating in the country. In addition, many
country offices serve as Public Information Centres (PICs) for the World Bank
Group.

3. Network Vice Presidencies and Sectors

IBRD and IDA have created thematic networks to develop connections among
communities of staff members who work in the same fi elds of development
and to link these staff members more effectively with partners outside the
Bank. The networks help draw out lessons learned across countries and
regions, and they help bring global best practices to bear in meeting country-
specific needs.

Each of the thematic networks covers several related sectors of development.

In organizational terms, a subunit is generally dedicated to each sector. Each
sector has its own board, with representatives drawn from the regions as well
as from the network itself. The sector boards are accountable to a network
council. Sector boards also identify themes topics in development that are
narrower than the work of the sector itself on which a small number of staff
members will focus, often in partnership with other organizations.

The sectoral programs correspond broadly to the sections, which provides

information on many sector programs within the World Bank and within the
corresponding industry departments or other units of IFC. Within the Bank,
the thematic networks and the sectors they cover are as follows:

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▪ Financial and Private Sector Development Network. Key areas
include financial systems; capital markets; financial inclusion;
investment climate; competitive industries; and innovation,
technology, and entrepreneurship.

▪ Human Development Network. The sectors covered by this network

are education; health, nutrition, and population; social protection and
labour; children and youth; HIV/AIDS; and development dialogue.

▪ Operations Policy and Country Services. The sectors are country

services, fragile and conflict situations, operational services, results and
delivery management, procurement, financial management,
safeguards, investment lending, development policy operations,
guarantees, aid effectiveness, and technical assistance.

▪ Poverty Reduction and Economic Management (PREM) Network. The

PREM Network sectors are poverty reduction, economic policy and
debt, gender and development, and public sector governance.

▪ Sustainable Development Network. The sectors covered by this

network are water and sanitation; energy; environment; agriculture
and rural development; urban development; transport; infrastructure;
information How the World Bank Group Is Organized 39 and
communication technologies; social development; and oil, gas, mining,
and chemicals. IFC industry departments and subsectors include the
following:

▪ Agribusiness. The subsectors include animal production, aquaculture,

beverages, dairy, fats and oils, fruits and vegetables, grains, and
processed food, among others.

▪ Global Financial Markets. The subsectors include advisory services,

carbon finance, consumer finance, sustainability and climate change

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 finance, global trade liquidity, housing finance, insurance, Islamic
finance, leasing, microfinance, small and medium-size enterprise
banking, and trade finance.

▪ Global Manufacturing and Services. The subsectors include

construction materials; energy-efficient machinery; forest products; life
sciences; tourism, retail, and property development; fibres; and
electronics, machinery, and appliances.

▪ Health and Education. The subsectors for health care facilities,

pharmaceuticals, e-health, insurance, ancillary services, and education
and training. The subsectors for education are primary and secondary
education, tertiary education, and e-learning.

▪ Infrastructure. The subsectors are airlines, airports, buses, logistics,

ports, port services, power generation, railways, shipping, toll services,
and water and gas.

▪ Private Equity and Investment Funds. The department selects and

structures new funds, leverages and shares the experience gained from
its portfolio, and adapts best industry practices to the constraints of the
different markets in which it operates.

Other Major World Bank Group Units and Activities

4. Corporate Secretariat

5. Development Economics

6. Ethics and Business Conduct

7. External Affairs

8. Financial Management

9. General Services

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 10. Human Resources

11. Independent Evaluation Group

4.2.2 Membership in the world Bank Group

The five institutions of the Bank Group are owned by their member countries.
To become a member of the International Bank for Reconstruction and
Development (IBRD), a country must first join the International Monetary
Fund (IMF). Membership in the International Development Association (IDA),
the International Finance Corporation (IFC), and the Multilateral Investment
Guarantee Agency (MIGA) further requires membership in IBRD.

In each of these cases, member countries buy shares in the institution, helping
build its capital and borrowing power; this arrangement is called “capital
subscriptions.” Member countries also sign the founding document of each
institution: the Articles of Agreement for IBRD, IDA, and IFC and the MIGA
Convention. Membership in the International Centre for the Settlement of
Investment Disputes (ICSID) entails signing and ratifying the ICSID
Convention and also involves capital subscriptions

Withdraw from Bank Group

Member countries can withdraw from Bank Group institutions at any time by
giving notice. A member may also be suspended, and after a year may be
expelled if it fails to fulfil any of its obligations to a Bank Group institution. A
country that ceases to be a member of the IMF automatically ceases to be a
member of the Bank Group unless, within three months, the Bank Group
decides by a special majority to allow the country to remain a member. When
a country ceases to be a member, it continues to be liable for its contractual
obligations, such as servicing its loans. It also continues to be liable for calls on
its unpaid subscription resulting from losses sustained by a Bank Group
institution on guarantees or loans outstanding on the date of withdrawal

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4.2.3 Ways of Classifying Countries
Several important distinctions among member countries are commonly used
at the Bank Group. Although the meanings of the terms overlap and all of them
make distinctions in terms of wealth it is important to note that they are not
interchangeable.

1. Low-income, middle-income, and high-income countries

In its analytical and operational work, the Bank Group characterizes country
economies as low-income, middle-income (subdivided into lower-middle and
upper-middle), and high-income. It makes these classifications for most non-
sovereign territories as well as for independent countries. Low-income and
middle-income economies are sometimes referred to as developing economies.
On the basis of 2001 gross national income, low-income countries are those
with average annual per capita incomes of US$745 or less. For lower-middle-
income countries, the figures are US$746 to US$2,975; for upper-middle-
income countries, US$2,976 to US$9,205; and for high-income countries,
US$9,206 or more. Classification by income does not necessarily reflect
development status

2. Developing and industrial countries

In general usage at the Bank Group, the term “developing” refers to countries
whose economies are classified as low-income or middle-income. The terms
“industrial” or “developed” refer to countries whose economies are high-
income. The use of these terms is not intended to imply that all economies in
the group are experiencing similar development or that other economies have
reached a preferred or final stage of development.

3. Part I and Part II

Countries choose whether they are Part I or Part II primarily on the basis of
their economic standing. Part I countries are almost all industrial countries and

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donors to IDA, and they pay their contributions in freely convertible currency.
Part II countries are almost all developing countries, some of which are donors
to IDA. Part II countries are entitled to pay most of their contributions to IDA
in local currency. MIGA makes a similar distinction between Category I and
Category II member countries. The breakdown of countries into these
categories differs slightly from the breakdown within IDA.

4. Donors and borrowers

In general, the term “donor” refers to a country that makes contributions to

IDA. A borrower country, however, can be one that borrows from IDA, from
IBRD, or in some cases from both. Note, however, that all member countries
pay capital subscriptions into IBRD, IDA, IFC, and MIGA—this payment is
distinct from a given country’s lending and borrowing.

5. IDA, IBRD, and blend countries—and graduates

The distinctions between IBRD and IDA borrowers and the circumstances in
which a country may be eligible to receive a blend of IBRD and IDA credits are
based on per capita income and the country’s creditworthiness. Note that as a
country’s per capita income increases, it can graduate out of eligibility for IDA
credits and, in turn, out of eligibility for IBRD loans. However, wealthier
countries remain members of Bank Group organizations, even if they or the
enterprises operating within their borders do not draw upon Bank Group
services

4.2.4 Regional Groupings

Most Bank Group institutions approach their work by grouping developing
countries into geographic regions. These regions are one dimension of an
organizational matrix, the other dimension being the thematic network aspects
of development that cut across regions. The sections below provide a brief
overview of Bank Group regions: which countries they include, a few essential

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facts, and some information on the Bank Group’s activities and priorities. They
also offer information on major regional initiatives, which in most cases are
partnership initiatives between the Bank Group and other organizations or
governments.

1. AFRICA (SUB-SAHARAN)

Regional Initiatives

Regional initiatives in Sub-Saharan Africa include the following:

a. The Africa Project Development Facility (APDF) supplies experienced

managers and technical personnel to small and medium private
companies in Africa. APDF offers customized training services to local
managers and staff members to upgrade their skills and improve
performance and productivity of their company. The program is a joint
initiative of IFC, the United Nations Development Programme
(UNDP), and the African Development Bank.

b. The African Management Services Company (AMSCO) provides

business advice and enterprise support services to small and medium
enterprises in Africa, as well as financial institutions and consultants
who serve such enterprises. AMSCO is sponsored by the African
Development Bank and IFC, with IFC as the executing agency.

c. The Global Partnership for Eliminating River blindness is an

initiative to eliminate onchocerciasis in Sub-Saharan Africa, and to help
affected countries maintain control of the disease. The program is a
joint initiative of the UNDP, the Food and Agriculture Organization,
the World Bank, and the World Health Organization.

d. The Indigenous Knowledge Program documents local or traditional

knowledge in developing countries and applies this knowledge to
issues of development. The program is a partnership between the
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 World Bank and various U.N. agencies, bilateral development
agencies, and nongovernmental organizations (NGOs).

e. The Multi-Country HIV/AIDS Program (MAP) is a World Bank

initiative that is making US$1 billion in flexible and rapid funding
available to African countries as they increase their efforts to combat
HIV/AIDS.

f. The New Partnership for Africa’s Development (NEPAD) is a

development initiative owned and led by Africans, with support from
the World Bank, the U.N., and a wide range of development agencies
and NGOs.

g. The Nile Basin Initiative is a regional partnership of the 10 countries

in the Nile basin, to fight poverty, promote economic development, and
coordinate management of Nile basin water resources.

h. The Transport Policy Program for Africa is a partnership between the

World Bank and numerous bilateral and multilateral agencies. This
program is aimed at facilitating policy development and related
capacity building in the transport sector of Sub-Saharan Africa.

2. EAST ASIA AND THE PACIFIC

Regional Initiatives

The following initiatives are in place in East Asia and the Pacific:

a. The Asia Alternative Energy Program is a partnership between the

World Bank and key bilateral donors to incorporate alternative energy
options into the design of energy sector strategies and lending by
operations for all of the Bank’s client countries in Asia.

b. The Asia Development Forum is a regional forum to strengthen links

and policy dialogues within the development community of the Asia
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 and Pacific region. It is sponsored by the Asian Development Bank, the
Korea Development Institute, the Korea Institute for International
Economic Policy, and the World Bank.

c. The China Project Development Facility helps support the

development of private small and medium enterprises in the interior
of China. It is funded by IFC and donor countries.

d. The Mekong Private Sector Development Facility supports the

development of private, domestically owned, small and medium
enterprises in Cambodia, Lao PDR, and Vietnam. It is managed by IFC
and funded by the Asian Development Bank and donor countries.

e. The South Pacific Project Facility provides financial and business

advisory services to the region’s small and medium businesses; it also
supports sectoral and regional programs that meet private sector
needs. It is managed by IFC and funded by the Asian Development
Bank and donor countries.

3. SOUTH ASIA

Regional Initiatives

South Asia initiatives include the following:

a. Immunization efforts in India and South Asia are a collaboration

between the World Bank and governments in the region. These efforts
are a major focus of the Global Alliance for Vaccines and
Immunization, a coalition of public and private institutions.

b. South Asia Urban Air Quality Management is a regional program. The

World Bank, with support from the UNDP, is identifying where more
data are needed to arrive at viable policy recommendations and is

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 assisting governments, civil society, and the media as they work to
improve urban air quality.

4. EUROPE AND CENTRAL ASIA

Regional Initiatives

Regional initiatives include the following:

a. The CIS 7 Initiative is an international initiative to reduce poverty and

promote growth and debt sustainability in low-income countries that
were formerly part of the Soviet Union: Armenia, Azerbaijan, Georgia,
Kyrgyz Republic, Moldova, Uzbekistan, and Tajikistan. Partners
include the countries’ governments and multilateral and bilateral
donors.

b. The Global Environment Facility Strategic Partnership on the Black

Sea–Danube Basin works to reduce water pollution in the Black Sea–
Danube Basin. The partnership requires the cooperation of all
stakeholders, including country governments, the Black Sea and
Danube Commissions, NGOs, the private sector, and multilateral and
bilateral financiers.

c. The Private Enterprise Partnership is the technical assistance arm of

IFC in the former Soviet Union. It works with donors, investors, local
businesses, and governments to attract private direct investment, to
stimulate the growth of small and medium enterprises, and to improve
the business climate.

d. The Social Development Initiative for South East Europe aims to

provide the governments of South East Europe, the donor community
involved in the region, and the World Bank with the capacity to carry
out social analyses, promote institution building, and launch pilot

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 projects to address inter-ethnic tensions and social cohesion issues in
southeast Europe.

e. Southeast Europe Enterprise Development is a multi-donor initiative

managed by IFC to strengthen small and medium enterprises in
Albania, Bosnia and Herzegovina, FYR Macedonia, and Serbia and
Montenegro.

5. LATIN AMERICA AND THE CARIBBEAN

Regional Initiatives

The following initiatives are in place in Latin America and the Caribbean:

a. The Clean Air Initiative for Latin American Cities focuses on

reversing the deterioration of urban air quality caused by rapid
urbanization, increased vehicular transport, and industrial production.
It is a partnership of city governments, private sector companies,
international development agencies and foundations, NGOs, and
academic institutions, with a technical secretariat at the World Bank.

b. The Multi-Country HIV/AIDS Prevention and Control Lending

Program for the Caribbean provides loans or credits to help individual
countries finance their national HIV/AIDS prevention and control
projects.

6. MIDDLE EAST AND NORTH AFRICA

Regional Initiatives

Regional initiatives in the Middle East and North Africa include the following:

a. The Governance in the Middle East and North Africa initiative seeks to
improve governance institutions and processes, the weaknesses of
which may lead to disappointing economic performance. It is a

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 partnership of individual researchers from the region, local think tanks,
and donor agencies.

b. The Mediterranean Development Forum is a biennial conference, with

participation by the World Bank Institute, the Bank’s Middle East and
North Africa region, the UNDP, and think tanks. Its goals include
empowering civil society to participate in shaping public policy,
making a contribution to the policy debate in key areas of regional
interest, improving the extent and quality of research on economic and
social policy issues, and improving networks to promote development
in the region.

c. The North African Enterprise Development facility is a multi-donor

initiative managed by IFC; it works to support small and medium
enterprises in the countries of North Africa.

4.2.5 How the World Bank operates

1. Strategies

This section covers the main strategies guiding the work of the Bank Group:

Poverty Reduction

Strategies Poverty reduction strategies represent the tangible outcomes of the

approach defi ned by the Comprehensive Development Framework. In
contrast to past approaches, which were applied to countries by donor
organizations, developing countries now write their own strategies for
reducing poverty.

The resulting Poverty Reduction Strategy Papers (PRSPs) then become the
basis for International Development Association (IDA) lending from the
World Bank, for comparable lending from the IMF’s Poverty Reduction and
Growth Facility, and for debt relief under the Heavily Indebted Poor Countries
(HIPC) Initiative.
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Country Assistance Strategies

Country Assistance Strategies (CASs) identify the key areas in which the Bank
Group can best assist a country in achieving sustainable development and
poverty reduction. CASs are the central vehicle used by the Bank Group’s
executive directors to review and guide the Bank Group’s support for
borrowers from the International Bank for Reconstruction and Development
(IBRD) and IDA. Each CAS includes a comprehensive diagnosis drawing on
analytic work by the Bank Group, the government, and other partners of the
development challenges facing the country, including the incidence, trends,
and causes of poverty.

From this assessment, the level and composition of Bank Group financial,
advisory, and technical support to the country are determined. So that
implementation of the CAS program can be tracked, CASs are increasingly
resulting focused. Thus, each CAS includes a framework of clear targets and
indicators that are used to monitor Bank Group and country performance in
achieving stated outcomes.

Thematic and Sector Strategies

Thematic and sector strategies address cross-cutting facets of poverty

reduction, such as HIV/AIDS, the environment, and participation in and
decentralization of the government. In addition, these strategies serve as a
guide for future work in a given sector, and they help in assessing the
appropriateness and the impact of related Bank Group policies.

The strategies are revised on a rolling basis through extensive consultation

with a wide variety of stakeholders. The process helps to build consensus
within the Bank Group and strengthen relationships with external partners.

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 2. Policies and Procedures

The World Bank Group has established policies and procedures to help ensure
that its operations are economically, financially, socially, and environmentally
sound. Each operation must follow these policies and procedures to ensure
quality, integrity, and adherence to the Bank Group’s mission, corporate
priorities, and strategic goals.

Policy definitions and documentation

Operational policies are short, focused statements that follow from the Bank’s
Articles of Agreement and the general conditions and policies approved by the
Board of Executive Directors. They establish the parameters for conducting
operations, describe the circumstances in which exceptions to policy are
admissible, and spell out who authorizes exceptions.

Bank procedures explain how staff members carry out the operational policies
by describing the procedures and documentation required to ensure
consistency and quality across the Bank. Good practices are statements that
contain advice and guidance on policy implementation, such as the history of
an issue, the sectoral context, and the analytical framework, along with
examples of good practice.

3. Environmental and social safeguard policies

Environmental and social safeguard policies help to avoid, minimize, mitigate,

and compensate for adverse environmental and social impacts in Bank
supported operations that result from the development process. Safeguard
policies have helped to ensure that environmental and social issues are
thoroughly evaluated by Bank and borrower staff in the identification,
preparation, and implementation of Bank-financed programs and projects.

The effectiveness and positive development impact of these projects and

programs have increased substantially as a result of attention to these policies.
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The safeguard policies also provide a platform for stakeholder participation in
project design and are an important instrument for building ownership among
local populations.

The Bank has 10 safeguard policies that cover the following issues:
environmental assessment, natural habitats, pest management, involuntary
resettlement, indigenous peoples, forests, cultural resources, dam safety,
international waterways, and projects in disputed areas. The Bank also has a
policy to govern the use of borrower systems for environmental and social
safeguards. Bank safeguards require screening of each proposed project to
determine the potential environmental and social risks and opportunities and
how to address those issues.

The Bank’s Quality Assurance and Compliance Unit within the Bank’s
Operations Policy and Country Services (OPCS) Vice Presidency, jointly with
the Environmental and International Law Practice Group of the Legal Vice
Presidency, provides support to Bank teams that are dealing with
environmental and social risks in Bank-supported operations.

Fiduciary policies

The Bank’s fiduciary policies, set forth in the Operational Manual, govern the
use and flow of Bank funds, including financial management, procurement,
and disbursement. The OPCS Vice Presidency provides guide the procurement
of goods and services in Bank projects. The guidelines help ensure that funds
are used for their intended purposes and with economy, efficiency, and
transparency. They also ensure competitive bidding and help protect Bank-
funded projects from fraud and corruption.

Access to information

In 2010, the Bank launched its Policy on Access to Information. The new policy
represents a fundamental shift in the Bank’s approach to disclosure of

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information moving from an approach that spells out what information it can
disclose to one under which the Bank will disclose any information in its
possession that is not on a list of exceptions.

For some years, the Bank has viewed the disclosure of information as a means
of being more open about its activities, explaining its work to the widest
possible audience, and promoting overall accountability and transparency in
the development process. Now the public can get more information than ever
before—information about projects under preparation, projects that are being
implemented, analytic and advisory activities, and Board proceedings

4.2.6 World Bank Group’s Relationship to the IMF and the United
Nations
The Bretton Woods Institutions the World Bank and the IMF were both created
in 1944 at a conference of world leaders in Bretton Woods, New Hampshire,
with the aim of placing the international economy on a sound footing after
World War II. As a result, of their shared origin, the two entities the IMF and
the expanded World Bank Group are sometimes referred to collectively as the
Bretton Woods institutions. The Bank Group and the IMF which came into
formal existence in 1945 work closely together, have similar governance
structures, have a similar relationship with the United Nations, and have
headquarters in close proximity in Washington, D.C. Although membership in
the Bank Group’s institutions is open only to countries that are already
members of the IMF, the Bank Group and the IMF remain separate institutions.
Their work is complementary, but their individual roles are quite different.

The IMF focuses on the macroeconomic performance of economies, as well as

on macroeconomic and financial sector policy. The Bank Group’s focus
extends further into the particular sectors of a country’s economy, and its work
includes specific development projects as well as broader policy issues.

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A few Banks Group and IMF units have joint functions, including the Library
Network, Health Services, and the Bank/Fund Conferences Office, which
plans and coordinates the joint Annual Meetings and Spring Meetings. The
staff members of the two institutions have formed the joint Bank-Fund Staff
Federal Credit Union, but this entity is independent of the institutions
themselves.

The Development Committee and the International Monetary and Financial

Committee

The Development Committee is a forum of the Bank Group and the IMF that
facilitates intergovernmental consensus building on development issues.
Known formally as the Joint Ministerial Committee of the Boards of the Bank
and Fund on the Transfer of Real Resources to Developing Countries, the
committee was established in 1974.

The Development Committee’s mandate is to advise the Boards of Governors

of the two institutions on critical development issues and on the financial
resources required to promote economic development in developing
countries. Over time, the committee has interpreted this mandate to include
trade and global environmental issues in addition to traditional development
matters.

The International Monetary and Financial Committee has a similar structure,

selection process for members, and schedule for meetings. It serves in an
advisory role to the IMF Board of Governors; however, unlike the
Development Committee, the International Monetary and Financial
Committee is solely an IMF entity.

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4.3 THE AFRICAN DEVELOPMENT BANK (AFDB)
The African Development Bank (AfDB) Group is a multilateral development
finance institution, comprising three distinct entities: the African Development
Bank (AfDB), the parent institution, and two affiliates, the African
Development Fund (ADF) and the Nigerian Trust Fund, (NTF). The AfDB
Group is Africa’s premier development finance institution. It is one of the five
major global multilateral development banks (MDBs). It is difficult to cover all
the activities and operations of the AfDB Group in a single document. AfDB in
Brief presents the salient features of the organisation and activities of the Bank
Group.

4.3.1 Overview of African Development Bank Group

AfDB: The African Development Bank was created on 4 August 1963 in
Khartoum, Sudan, where 23 newly independent African countries signed the
Agreement establishing the institution. On 10 September 1964, the Agreement
came into force when 20 member countries subscribed to 65% of the Bank’s
capital stock which then stood at US$ 250 million. The inaugural meeting of
the Board of Governors (mostly finance ministers) was held from 4-7
November 1964 in Lagos, Nigeria.

The headquarters of the AfDB was opened in Abidjan, Côte D’Ivoire, in March
1965. The AfDB commenced operations in July 1966 with ten staff members.
When the Bank was established, only independent African countries were
eligible to be shareholders. Thus, for 19 years, the AfDB depended on African
countries for its capital resources. In 1982, the Bank’s capital was opened to
non-African Countries.

The African Development Fund (ADF): The Agreement establishing the

African Development Fund was signed on 29 November 1972, by the African
Development Bank and 13 non-regional countries (State Participants). The
ADF emerged as the solution to two major constraints which became apparent

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after the Bank commenced operations: the nature as well as terms of lending
to the poorest of the countries, especially for projects with long-term maturities
or non-financial returns such as roads, education and health.

The Nigeria Trust Fund (NTF): The Nigeria Trust Fund was set up in 1976 by
agreement signed between the Government of the Federal Republic of Nigeria
and the Bank Group. The NTF became operational in April 1976 following
approval of the agreement establishing it by the Board of Governors.

4.3.2 Objectives of African Development Bank

The overall objective of the AfDB Group is to support the economic
development and social progress of African countries individually and
collectively, by promoting investment of public and private capital in projects
and programs designed to reduce poverty and improve living conditions.
Combating poverty is at the heart of the Bank’s efforts to assist the continent
to attain sustainable economic growth.

The Bank Group therefore strives to mobilize internal and external resources
to promote investment and provide technical assistance to the Regional
Member Countries (RMCs). Additional resources are usually mobilized
through co-financing with bilateral and other multilateral development
agencies as well as from the financial markets. The AfDB Group also promotes
international dialogue on development issues concerning Africa. It supports
policy reforms, capacity building, knowledge sharing, studies and preparation
of development projects.

As from 2006, the Institution has placed greater emphasis on the following
strategic areas: Investing in infrastructure; the private sector, supporting
economic and governance reforms; promoting higher education, technology
and vocational training; promoting regional integration. Through these core
investment areas, the AfDB Group provides support to fragile states, low-
income countries, middle-income countries, agriculture and rural
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development, social and human development, the environment and climate
change, and gender issues.

4.3.3 Membership of the Group

At the end of December 2012, the Bank had 77 member countries, comprising
53 African or regional member countries (RMCs) and 24 non-African or non-
regional member countries (NRMCs).

Initially, only independent African countries could become members of the

Bank. With a larger membership, the institution was endowed with greater
expertise, the credibility of its partners and access to markets in its non-
regional member countries. The Bank however maintains its African character
by virtue of its geographical location and ownership structure. It is always
headquartered in Africa; its investment operations are exclusively in Africa
and its President is always an African.

African/Regional member countries

Algeria, Angola, Benin, Botswana, Burkina-Faso, Burundi, Cameroon, Cape-

Verde, Central African Republic, Chad, Comoros, Congo, Democratic
Republic of Congo, Côte d’Ivoire, Djibouti, Egypt, Eritrea, Equatorial Guinea,
Ethiopia, Gabon, The Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho,
Liberia, Libya, Madagascar, Malawi, Mali, Mauritania, Mauritius, Morocco,
Mozambique, Namibia, Niger, Nigeria, Rwanda, Sao Tome and Principe,
Senegal, Seychelles, Sierra Leone, Somalia, South Africa, Sudan, Swaziland,
Tanzania, Togo, Tunisia, Uganda, Zambia and Zimbabwe.

Non-African/Non-regional member countries

Argentina, Austria, Belgium, Brazil, Canada, China, Denmark, Finland,

France, Germany, India, Italy, Japan, Korea, Kuwait, Netherlands, Norway,
Portugal, Saudi Arabia, Spain, Sweden, Switzerland, United Kingdom and
United States of America.

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To become an AfDB member, non-regional States must first and fore most
accede to ADF membership. Only one ADF member state, the United Arab
Emirates, is yet to accede to AfDB membership. South Africa is currently
completing the requirements of accession to ADF. Turkey whose membership
was approved by the Board of Governors in Maputo, Mozambique, in May
2008 is in the process of completing the requirements of state participation in
the ADF.

4.3.4 Resources of the African Development Bank

AfDB resources are made up of ordinary and special funds. The ordinary
resources include:

i. Capital subscriptions by member countries,

ii. Income generated from loan repayments

iii. Funds raised through borrowings in the international financial

markets,

iv. Other income received by the Bank for example through bilateral and
multilateral donors or income from investment.

The AfDB is also authorized to establish or be entrusted with Special funds,

under Article 8 of the Agreement Establishing the Bank. In conformity with these
provisions the ADF and NTF were established as the foremost special funds in
1972 and 1976. Since then, the Bank has established and manages several
special funds which are consistent with its purposes and functions. The
decision to open the Bank’s capital to non-African participation proved very
positive, in terms of membership and capital structure.

ADF Resources consist of:

i. subscriptions by State Participants usually on a 3-year basis

ii. subscription by the Bank;

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 iii. funds derived from operations accruing to the Fund

iv. other resources received by the Fund.

4.3.5 The Institutional and management structure

1. Board of Governors

The Board of Governors is the supreme organ of the Bank. Each member
country is represented on the Board by a Governor and an Alternate. The
position of Governor is usually held by Ministers of Finance and/or Economy
of member states. The Board of Governors issues general directives concerning
the operational policies of the Bank. For the ADF Board of Governors, each
State Participant is represented by one Governor while Governors of the
African Development Bank are ex-officio Governors of the ADF

2. Board of Directors

The Board is made up of 20 Executive Directors, elected by the Board of

Governors for a period of 3 years renewable once. Regional Member Countries
have 13 Directors while the remaining seven come from non-regional states.
The Boards (AfDB/ADF) exercise all the powers of the Bank except those
expressly reserved for the Board of Governors by the Agreement establishing
the Bank. The Boards are responsible for the conduct of the general operations
of the Bank. With regard to the ADF Board comprising 14 Directors, seven are
appointed by the State Participants, while the other seven are designated by
the African Development Bank from among the regional Executive Directors
of the Bank.

Under the Bank’s organization chart the following three:

a. Departments--Operations Evaluations,

b. Compliance Review & Mediation Unit,

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 c. Administrative Tribunal--come under the 13 direct controls of the
Board of Directors while the President exercises oversight functions
over them.

3. The President

Elected by the Board of Governors, the President is the Chief Executive and
conducts the business of the Bank. The President is also the legal representative
of the Bank. He is elected for a term of five years, renewable once.

The AfDB President is also the President of the ADF as well as the Chairman
of the Board of Directors. He determines the organizational structure,
functions and responsibilities as well as the regional and country
representation offices. He proposes to the Board of Directors the appointment
of the Vice-Presidents who assist him in the day-to-day management of the
Bank Group. The AfDB comprises 43 departments.

4.3.6 Operations, policies, initiatives and achievements

A. Lending instruments

In the past, Bank Group operations were oriented almost exclusively to project
lending. Since 1980, and in response to changing economic circumstances of
regional member countries, the AfDB has greatly diversified its lending,
making use of several lending instruments. The instruments are as follows:

i. Project loans: Investments aimed at creating specific productive assets

or increasing identifiable outputs;

ii. Lines of credit: Funds channelled through national or sub-regional

development finance institutions aimed at financing a number of
specific projects, most frequently from small and medium-scale
enterprises;

iii. Sector investment and rehabilitation loan investments aimed at

strengthening or rehabilitating sector specific planning, production or
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 marketing capabilities; often used to finance imports of equipment or
inputs for a sector;

iv. Sector adjustment loans: Credits aimed at supporting policy changes

or institutional reforms in a specific sector;

v. Structural adjustment loans: Credits aimed at fostering specific macro-

economic policy reform;

vi. Technical assistance operations: Loans or grants that provide

expertise aimed at increasing the capacities of regional or national
institutions that finance studies needed for project preparation.

The first three lending instruments are referred to, collectively, as “project or
programme lending”. The designation “policy-based lending” (PBL) applies
to the fourth and fifth categories of sectoral and structural adjustment lending
technical assistance operations are financed only by the ADF through the
Technical Assistance Fund.

vii. Budget support and country system instruments. Over the past years
the Bank has increased its use of a new lending framework for projects.
Budget support, generally provides funds to the country covering
expenditure relating to the project and for general public finance
budget spending. In so doing the Bank implements the project through
the “country systems” approach which would rely solely on a
borrower government’s systems (for example a country’s relevant
national, sub-national, or sectoral implementing institutions and
applicable laws, regulations, rules, procedures, and track records).

B. Project cycle

i. Country strategy paper and project identification

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AfDB Group works with each borrowing regional member country to define a
medium-term to long-term development strategy and operational program in
a document called Country Strategy Paper (CSP). The CSP emphasizes
performance and results, aligned to the country's own development plan and
poverty reduction goals, and its preparation or planning cycle. This is a major
instrument of AfDB Group policy dialogue with the countries.

ii. Project preparation

This phase starts with the AfDB Group’s interest to finance a given project or
programme, and includes both in-bank and external collection of information
and data which will help the Bank’s experts to appraise the project. A
preparation mission to a country is multi-disciplinary and usually led by an
expert. During the preparation mission, the experts review the project in line
with the Country Strategy Paper (CSP), obtain existing documentation such as
feasibility studies on the project, and cross-check information with the
authorities of the country.

iii. Loan negotiation

During negotiations, agreement should be reached on the following:

▪ Objectives and description of the project, studies or programmes;

▪ Loan amount in foreign and local costs of the project and the financing
plan;

▪ A tentative list of goods and services to be procured;

▪ The schedule of execution and expenditure;

▪ The disbursement methods selected by the borrower;

▪ The tentative schedule of disbursements including precise information

on account numbers and correspondent banks;

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 ▪ The procurement methods and dates of bidding announcements;

• proposed realistic date for loan signature and deadlines for first
and last disbursements;

• for co-financed projects, respective financing plans, cross-

effectiveness and other miscellaneous information.

• precise information on the executing agency and the project

implementation unit;

iv. Board approval

After negotiations with the government, the loan proposal is submitted to the
AfDB Board of Directors for approval.

v. Implementation

Project implementation starts from the moment the project is declared

effective. AfDB Group projects are implemented by the executing agency
according to the agreed schedule and procedures. The supervision of
implementation, however, enables the Bank to make sure the physical
realization of the project is progressing smoothly and in accordance with the
implementation schedule and details. Borrowing countries are generally
advised and encouraged to complete these activities prior to loan negotiation
and loan signature to minimize delays in project implementation.

C. Resource allocation by country categories

Allocations of the AfDB resources for country operations consider the

following conditions:

▪ The volume of resources at the disposal of each of the three affiliate

institutions.

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 ▪ An interplay of priorities outlined in the country’s development plan,
Bank’s Country Strategy Paper and the country’s absorptive capacity.

▪ The country’s special geographic and political situation for example for
land-locked countries, fragile states, post-conflict states, emergency
situations

▪ Level of indebtedness for instance HIPC countries.

▪ Country category based on GNP per capita income and debt servicing
capacity.

D. Promoting Africa’s green growth and climate change

operations

The AfDB established the Energy, Environment and Climate Change

Department in 2010 to align its core operations in energy and climate change.
The Bank also established Quality Assurance and Results Department to guide
all Bank operations departments through polices, seminars and capacity
building programmes, to ensure that Bank-financed projects and programmes
comply with globally approved environmental and social safeguards. It has
developed appropriate regional training programmes to enable Bank staff and
RMC officials to apply climate change safeguards, policies and guidelines.

E. Establishment of institutions

At the continental level the African Development Bank has also been
instrumental in the establishment and promotion of the following African
institutions:

▪ Africa Re-insurance Corporation;

▪ Shelter Afrique;

▪ Association of African Development Finance Institutions (AADFI);

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 ▪ Federation of African Consultants (FECA);

▪ Africa Project Development Facility (APDF);

▪ International Finance Company for Investments in Africa (SIFIDA);

▪ African Management Services Company (AMSCO);

▪ African Business Round Table (ABR);

▪ African Export-Import Bank (AFREXIMBANK);

▪ African Capacity Building Foundation; (ACBF)

▪ Joint Africa Institute;

▪ PTA Bank;

▪ Network for Environment and Sustainable Development in Africa

(NESDA);

F. AfDB Water Supply Initiatives

▪ The Rural Water Supply and Sanitation Initiative (RWSSI);

▪ Hosting the African Water Facility (AWF), on behalf of the African

Ministerial Council on Water (AMCOW) and

▪ The establishment of the Multi-Donor Water Partnership Program

(MDWPP)

G. Selected Bank-led Initiatives

The AfDB is conducting other projects. In particular:

▪ NEPAD for infrastructure development in Africa and Lead Agency.

▪ NEPAD Special Fund

▪ Infrastructure Project Preparation

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 ▪ Infrastructure Consortium for Africa

▪ Debt Relief under HIPC, MDRI, PCCF

▪ Rural Water Supply & Sanitation Initiative

Stakeholders and beneficiaries often cite the water and debt relief initiatives as
concrete examples of well-tailored support enhancing the Bank Group’s
development effectiveness on the continent.

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4.4 THE WORLD BANK ASSOCIATES

4.4.1 INTERNATIONAL DEVELOPMENT ASSOCIATES (IDA)

After the rebuilding of Europe following World War II, the Bank turned its
attention to the newly independent developing countries. It became clear that
the poorest developing countries could not afford to borrow capital for
development on the terms offered by the Bank; hence, a group of Bank member
countries decided to found IDA as an institution that could lend to very poor
developing nations on easier terms. To imbue IDA with the discipline of a
bank, these countries agreed that IDA should be part of the World Bank. IDA
began operating in 1960.

The International Development Association (IDA) is the part of the World

Bank that helps the world’s poorest countries. IDA aims to reduce poverty by
providing loans (called “credits”) and grants for programs that boost economic
growth, reduce inequalities, and improve people’s living conditions.

IDA complements the World Bank’s original lending arm the International
Bank for Reconstruction and Development (IBRD). IBRD was established to
function as a self-sustaining business, and provides loans and advice to
middle-income and credit-worthy countries. IBRD and IDA share the same
staff and headquarters and evaluate projects with the same rigorous standards.
IDA is one of the largest sources of assistance for the world’s 75 poorest
countries, 39 of which are in Africa, and is the single largest source of donor
funds for basic social services in these countries.

IDA lends money on concessional terms. This means that IDA credits have a
zero or very low interest charge. Repayments are stretched over 25 to 38 years,
including a 5- to 10-year grace period. IDA also provides grants to countries at
risk of debt distress. In addition to concessional loans and grants, IDA provides
significant levels of debt relief through the Heavily Indebted Poor Countries
(HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI).
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IDA within the World Bank Group

The IDA is a member of the group of institutions known collectively as the

World Bank. The other institution s i n the group are the International Bank for
Reconstruction and Development (IBRD) and the International Finance
Corporation (IFC). The IBRD and the IDA, although technically separate, are
in effect two funds administered by a single institution, sharing the same staff.
The IDA provides development finance on very soft terms - repayment over
50 years, with no instalments in the first ten years, and a service charge of
0.75%. These terns are significantly softer than those of the IBRD.

4.4.1.1 The significance of the IDA

The availability of a large volume of development finance through the IDA i s
likely to have the following effect s on the pattern of economic a i d as a whole:

a. it makes funds available to the developing countries on terms that do

not result in a crippling burden of debt;

b. i t draws resources from the developed countries i n accordance with

an agreed scale, which ensures a reasonably fair distribution of any
increase i n the amount provided;

c. it greatly strengthens the World Bank's ability to perform certain

functions:

i. the provision of development finance to countries in Asia

and Africa which cannot afford to accept large amounts on
the terms of IBRD loans, especially India and Pakistan;

ii. the organisation of machinery for co-ordinating aid from

different sources;

iii. the influencing of developing countries' policies in

directions which the World Bank, the United States, and

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 other major donors think conducive to development of an
appropriate sort.

iv. the organisation and supervision of large projects, i n which

contractors from several countries participate on
competitive terms - a function which the Bank can only,
fulfil in a position to put resources of its own int o the
project in question.

IDA partners with the world’s poorest countries to reduce poverty by

providing credits and grants. Credits are loans at zero or low interest with a
10-year grace period before repayment of principal begins and with maturities
of 20 to 40 years. These credits are often referred to as concessional lending.
IDA credits help build the human capital, policies, institutions, and physical
infrastructure that these countries urgently need to achieve faster,
environmentally sustainable growth. IDA-financed operations address
primary education, basic health services, clean water and sanitation,
environmental safeguards, business climate improvements, infrastructure,
and institutional reforms. These projects pave the way toward economic
growth, job creation, higher incomes, and better living conditions.

4.4.1.2 The IDA'S resources

The IDA came legally int o being on 2 September I960. The subscriptions of the
developed countries (Part I members) were fully convertible, but the
developing countries (Part II members) paid only 10% of their subscriptions in
convertible funds. New accessions raise d the total of subscriptions in
convertible funds to $731 million, of which; $751 million was provided by the
Part I members.

4.4.2 INTERNATIONAL FINANCIAL COOPERATION (IFC)

Established in 1956, IFC is one of the oldest multilateral lending institutions
and a member of the WBG. IFC's very strong enterprise risk profile is
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supported by its strong track record. In April 2018, WBG's Development
Committee of the Board of Governors endorsed a $5.5 billion paid-in capital
increase, largely in support of IFC's 3.0 strategy designed to create a more
deliberate approach to creating and opening new private-sector markets,
particularly in International Development Association (IDA)-eligible and
fragile and conflict-affected situations (FCS), as well as mobilizing new sources
of funds to support private-sector solutions. We believe if IFC meaningfully
delivers on this strategy, its enterprise risk profile could strengthen.

4.4.2.1 Scope of Application

IFC urges sponsors of investment projects to avoid the disturbance and
displacement of human populations. Where such disturbance is unavoidable,
the project sponsor should minimize adverse effects on people and on the
environment through judicious routing or siting of project facilities. The aim
of the involuntary resettlement policy is to ensure that people who are
physically or economically displaced as a result of a project end up no worse
off and preferably, better off than they were before the project was undertaken.

IFC’s three businesses

▪ investment services,

▪ advisory services,

▪ asset management

All these foster sustainable economic growth in developing countries by

financing private sector investment, mobilizing capital in international
financial markets, providing advisory services to businesses and governments,
and channelling finance to the poor. IFC helps companies and financial
institutions in emerging markets create jobs, generate tax revenues, improve
corporate governance and environmental performance, and contribute to their

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local communities. The goal is to improve lives, especially for the people who
most need the benefits of growth.

Direct lending to businesses is the fundamental contrast between IFC and the
World Bank: under their Articles of Agreement, IBRD and IDA can lend only
to the governments of member countries. IFC was founded specifically to
address this limitation of World Bank lending.

IFC provides equity finance, long-term loans, syndicated loans, loan

guarantees, structured finance and risk management products, and advisory
services to its clients. It seeks to reach businesses in regions and countries that
otherwise would have limited access to capital. It provides financing in
markets deemed too risky by commercial investors in the absence of IFC
participation.

IFC also supports the projects it finances by providing advice to businesses

and governments on access to finance, corporate governance, environmental
and social sustainability, the investment climate, and infrastructure. Much of
the advisory work is funded by IFC’s donor partners, through trust funds, or
through facilities with a regional or thematic focus.

To maximize its effect on development, IFC emphasizes five strategic

priorities: strengthening the focus on frontier markets; building long-term
client relationships in emerging markets; addressing climate change and
ensuring environmental and social sustainability; addressing constraints to
private sector growth in infrastructure, health, education, and the food supply
chain; and developing domestic financial markets.

In conjunction with IFC, the Bank is also helping countries strengthen and
sustain the fundamental conditions they need to attract and retain private
investment. With Bank Group support—both lending and advice—
governments are reforming their overall economies and strengthening

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banking systems. Investments in human resources, infrastructure, and
environmental protection help enhance the attractiveness and productivity of
private investment.

4.4.2.2 Project financing

IFC offers an array of financial products and services to companies in its
developing member countries:

▪ Loans for IFC’s account ▪ Quasi-equity finance

▪ Equity investments ▪ Equity and debt funds

▪ Syndications ▪ Intermediary services

▪ Structured and securitized ▪ Risk management products

finance
▪ Local currency finance
▪ Trade finance
▪ Subnational finance

It can also combine its financial products and services with advice tailored to
the needs of each client. The bulk of the funding, as well as leadership and
management responsibility, however, lies with the private sector owners. IFC
charges market rates for its products and does not accept government
guarantees. Therefore, it carefully reviews the likelihood of success for each
enterprise. To be eligible for IFC financing, projects must be profitable for
investors, must benefit the economy of the host country, and must comply with
IFC’s environmental and social standards.

IFC finances projects in all types of industries and sectors, including

manufacturing, infrastructure, tourism, health, education, and financial
services. Financial services projects are the largest component of IFC’s
portfolio, and they cover the full range of financial institutions, including

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banks, leasing companies, stock markets, credit-rating agencies, and venture
capital funds. IFC does not lend directly to microenterprises, to small and
medium-size enterprises, or to individual entrepreneurs; however, many of its
investment clients are financial intermediaries that on-lend to smaller
business.

Resource mobilization

Through its syndicated loan (or B-loan) program, IFC offers commercial banks
and other financial institutions the chance to lend to IFC-financed projects that
they might not otherwise consider. These loans are a key part of IFC’s efforts
to mobilize additional private sector financing in developing countries and to
broaden its development effects. Through this mechanism, financial
institutions share fully in the commercial credit risk of projects, whereas IFC
remains the lender of record.

Participants in IFC’s B-loans share the advantages that IFC derives as a

multilateral development institution, including preferred creditor access to
foreign exchange in the event of a foreign currency crisis in a particular
country. Where applicable, these participant banks are also exempted from the
mandatory country-risk provisioning requirements that regulatory authorities
may impose if these banks lend directly to projects in developing countries.

Advisory services

IFC supports private sector development both by investing and by providing

advisory services that build businesses. Its advisory services are organized into
five business lines: access to finance, corporate advice, environmental and
social sustainability, investment climate, and infrastructure.

Much of IFC’s advisory services work is conducted through facilities managed

by IFC but funded through partnerships with donor governments and other
multilateral institutions. Some facilities operate within specific regions, and
others are concerned with such cross-cutting themes as carbon finance, cleaner
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technologies, social responsibility, sustainable investing, investment climate,
and gender.

Asset management

A new line of business for IFC is asset management, part of a financial

intermediation model in development that allows long-term investors to take
advantage of growth opportunities in Africa and other less developed regions.
The objective is to increase the supply of long-term equity capital to
developing and frontier markets in a way that enhances IFC’s development
goals and generates profits for investors.

IFC and Trade

IFC supports banking institutions that provide trade enhancement facilities to

local companies, as part of IFC’s larger goal of seeking innovative ways to
boost the private sector in the developing world and emerging markets.

4.4.3 THE MULTILATERAL INVESTMENT GUARANTEE AGENCY

(MIGA)
By providing political risk insurance (PRI), or guarantees, to investors and
lenders against losses caused by non-commercial risks, MIGA promotes
foreign direct investment (FDI) in emerging economies and thereby
contributes to economic growth, poverty reduction, and the improvement of
living standards.

Projects financed by MIGA create jobs; provide water, electricity, and other
basic infrastructure; strengthen financial systems; generate tax revenues;
transfer skills and technological know-how; and allow countries to tap natural
resources in an environmentally sustainable way. MIGA helps investors and
lenders by insuring projects against losses related to currency inconvertibility
and transfer restriction, expropriation, war and civil disturbance (including
terrorism), breach of contract, and failure to honour sovereign financial
obligations.
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MIGA insures cross-border investments made by investors from a MIGA
member country into a developing country that is also a member of MIGA. Its
operational strategy, which is designed to attract investors and private
insurers into difficult operating environments, focuses on four priorities where
it can make the greatest difference:

▪ Investments in IDA-eligible countries. These markets typically have the

most need and stand to benefit the most from foreign investment, but
they are not well served by the private insurance market.

▪ Investments in conflict-affected countries. Although these countries

tend to attract considerable donor goodwill once conflict ends, aid
flows eventually decline. With many investors wary of potential risks,
PRI is essential to bring in investment.

▪ Investments in complex projects, mostly in infrastructure and the

extractive industries. Given that 1.6 billion people still do not have
electricity and 2.3 billion depend on traditional biomass fuels,
investments in these sectors are critical for the world’s poorest nation.

▪ Support for South-South investments. Investments between

developing countries are contributing an ever-increasing proportion of
FDI flows. But private insurers or national export credit agencies in
these countries, if they exist at all, are often not sufficiently developed
and lack the ability and capacity to provide PRI.

4.4.3.1 Development effects and priorities

Projects that MIGA supports have widespread benefits, such as generating jobs
and taxes and transferring skills and know-how. In addition, local
communities often receive significant secondary benefits through improved
infrastructure. Projects encourage similar local investments and spur the
growth of local businesses. MIGA ensures that projects are aligned with World

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Bank Group Country Assistance Strategies and integrate the best
environmental, social, and governance practices.

MIGA helps countries defi ne and implement strategies to promote investment

through technical assistance services managed by the Foreign Investment
Advisory Services of the World Bank Group. Through this vehicle, MIGA’s
technical assistance is facilitating new investments in some of the most
challenging business environments in the world.

4.4.3.2 Added value

MIGA gives private investors the confidence they need to make sustainable
investments in developing countries. As part of the World Bank Group, MIGA
brings security and credibility to an investment, acting as a potent deterrent
against government actions that may adversely affect investments. If disputes
do arise, the agency’s leverage with host governments frequently enables it to
resolve differences to the mutual satisfaction of all parties.

MIGA is a leader in assessing and managing political risks, developing new

products and services, and finding innovative ways to meet clients’ needs. The
agency can also enable complex transactions to go ahead by offering
innovative coverage of the non-traditional sub-sovereign risks.

MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs. By doing so, it
expands the capacity of the PRI industry and encourages private sector
insurers to enter into transactions they would not otherwise have undertaken.
MIGA’s guarantees can be used on a stand-alone basis or in conjunction with
other World Bank instruments, which offer an additional set of benefits.

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5 UNITED NATIONS CONFERENCE ON TRADE AND
DEVELOPMENT (UNCTAD)

5.1 UNCTAD: A BRIEF HISTORICAL OVERVIEW

In the post-war period, most matters concerning trade were dealt with in the
General Agreement on Tariffs and Trade (GATT) and based on the principle
of most favoured nation (MFN) treatment (with the emphasis placed on
reciprocity and non-discrimination). But international commodity agreements
fell under the responsibility of Economic and Social Council (ECOSOC)
committees, as well as the Food and Agricultural Organization (FAO) a UN
specialized agency.

Aid questions were handled by two establishments: most multilateral aid was
handled by the World Bank (later together with the regional development
banks); bilateral aid was overseen by the Development Assistance Committee
(DAC) of the Organisation of Economic Cooperation and Development
(OECD). Issues touching upon international monetary cooperation were
normally discussed within the International Monetary Fund (IMF).
Developing countries recognized that they should uphold the common
diplomatic stance that all of these institutionally fragmented but functionally
integrated issues should be considered comprehensively within one central
organization.

Thus, beginning in the early 1960s, developing countries forcefully developed

a coalition to press for changes in the functioning of the international economic
regime by establishing a 3 universal forum to deal with all development-
related issues in a comprehensive fashion. The coalition had its roots in the
process of decolonization, the growing disillusionment with the workings of
the international economic regime in general and dissatisfaction with the
efforts of the Bretton Woods institutions (for example the World Bank and the
IMF) and GATT to frame an adequate response to the problems of economic

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development. Feeling marginalized in the decision-making process of the
Bretton Woods institutions, as well as in the GATT negotiations, developing
countries sought an alternative international forum in which they could
articulate and aggregate their interests. Therefore, a key component in the
platform within and outside the UN among the developing countries was, first
of all, a call for an international conference on trade and development, which
was incidentally strongly supported by socialist countries.

5.1.1 Origin of UNCTAD

Post-war decolonization led to the creation of the non-aligned movement
(NAM), whose origins can be traced back to the Afro-Asian People's
Conference held in Bandung, Indonesia in 1955. The decolonization process
also increased the representation of developing countries in the UN. In 1960,
the entry of Cyprus and 17 African states swelled the ranks of developing
countries in the organization, guaranteeing their decisive majority within it.

The first joint action of developing countries from Asia, Africa and Latin
America was the Conference on Problems of Developing Countries, held in
Cairo in July 1962, which was a non-UN meeting, and was attended by 36
delegations. The Cairo Declaration called for an international conference
within the framework of the UN on “all vital questions related to international
trade, primary commodity trade and economic relations between developing
and developed countries (UNCTAD, 1985: 10)”. Later in the same year, the UN
General Assembly decided to convene a conference on trade and development,
and established a preparatory committee for it. Indeed, this decision was a
triumph of the developing countries resulting from their persistent pressure
over the general opposition of western developed countries.

UNCTAD may be seen as a revival of some of the widely encompassing ideas

associated with the scheme of establishing the International Trade
Organization (ITO) at the Havana Conference in 1948. It was expected that the

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Havana Charter which formed the basis of the ITO, would, together with the
World Bank and the IMF, constitute an institutional "troika" of international
institutions to prevent serious problems in the international economic and
financial systems. However, the ITO could not be institutionalized, having
failed to achieve ratification by the required number of signatories to the
Havana Charter.

GATT, an interim arrangement signed in 1947, called for international

cooperation in international trade, and ventured into establishing ground rules
(perhaps equivalent to a code of conduct) in tariff regulations. But unlike the
ITO, GATT failed to incorporate provisions dealing with commodity
agreements, restrictive business practices, foreign investment and preferential
trading systems for the developing countries. And these were some of the
major areas of interest which developing countries wanted to pursue in
negotiations with developed countries in UNCTAD.

Developing countries were critical of the GATT system of negotiations as they

always reflected the relative economic strength of the individual "contracting
parties", for instance member States. GATT negotiations, which began among
23 contracting parties in Geneva, typically took place between the principal
sets of producers and consumers for each product group. Concessions agreed
in this manner were generalized by being granted to all others by the adoption
of the most favoured nation (MFN) principle. This effectively diminished the
impact of developing countries on the negotiations, as they rarely accounted
for major market shares either as producers or consumers. In short,
representatives of the OECD countries were the most influential participants
in multilateral trade negotiations, and GATT itself quickly became a largely
technical instrument for managing trade among these countries.

UNCTAD I was held when the Kennedy Round of GATT negotiations (1964-
1967) was about to embark, or at a time of expansion in the world economy

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where the need for major cooperative efforts for the developing countries was
broadly recognized. It was the belief that such efforts should be made specially
to assist the developing countries to participate in world trade by improving
market access abroad, strengthening and stabilizing commodity markets and
enlarging financial flows to them. These issues have continued to be of
paramount concern to UNCTAD.

5.1.2 Principal analytical ideas

The intellectual underpinning for the operation of UNCTAD came from the
structuralist thesis of Raul Prebisch, the organization’s first Secretary-General.
The two main tenets of the thesis were:

a. that price of primary commodities (staple foodstuffs and raw

materials), which form the main exports of developing countries, have
declined relative to the prices of manufactured exports and that this
was an inevitable and continuous process;

b. as a result of this tendency most of the gains from international trade

accrue to developed and industrialized countries, while developing
countries gain relatively little from their participation in existing
international trade relations.

Prebisch based these tenets on differences in the demand characteristics of

primaries and manufactures, namely low price and income elasticities of the
demand for the former, as opposed to the demand for the latter. The price
elasticity demand for primaries, he argued, was low so that reducing their
prices through either productivity growth or through currency devaluation
would lead to a relatively small increase in quantities sold; this would in turn
fail to create any significant increase in the export earnings of developing
economies. It was also claimed that technological progress in industrial nations
would result in the increased use of synthetics, and thus a reduction in the raw
materials' content of manufactured products. Taken together, these factors
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would result in a growth in demand for primary commodities that would be
much slower than for manufactures.

Two other points of interest in Prebisch's policy prescription entailed

advocating for international commodity agreements and compensatory
financing schemes, not simply as devices to moderate fluctuations in
commodity markets, but as a means of transferring income to the exporters.
UNCTAD has concentrated its attention on the stabilization and strengthening
of commodity markets.

From the outset, UNCTAD has been a major institutional actor promoting the
development of a global trading system that promotes the preferential
treatment for developing countries on a non-reciprocal basis as opposed to the
MFN treatment for all.

5.1.3 Development strategies

In the early post-war period, UN development strategies, or more accurately
the development strategies advocated by the UN secretariat, were heavily
influenced by newly-emerging disciplines of growth theory. Conceived in the
context of a transition from industrial backwardness, the strategies were built
around two broad challenges facing developing countries. First, the shortage
of finance was seen as the biggest constraint for initiating and maintaining
faster growth. Second, breaking this constraint could not be achieved by
market forces alone. These challenges led to the development strategies of
"Global Keynesianism", which stressed that public finance could make a
considerable contribution to world development.

In the process of preparing the first UNCTAD Conference in 1964, economic

thinking on development also grew in sophistication, and was deepened and
defined by academics and policymakers from the developing countries
themselves. Thus, efforts to measure the size of the resources gap revealed
developing countries to be net exporters of capital, once the repayment of
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loans, terms-of-trade losses and capital flight were included in the calculation
(UNCTAD 2004: 88). Needless to say, the largest contribution was made by
Prebisch himself together with his colleagues in the then Economic
Commission of Latin America (ECLA), the forerunner of the present Economic
Commission of Latin America and Caribbean (ECLAC).

The UNCTAD I report, known as the Prebisch report, set out to show that
given the structural obstacles to growth for the developing countries, the free
play of international economic forces would not by itself lead to the most
desirable utilization of the world's productive resources. As for the policy
implications for trade and related finance to achieve the target of 5 per cent
annual growth rate (for the first UN Development Decade of the 1960s) for
developing countries, the report rejected both the import substitution model
handed down from the inter-war period and the MFN openness model
embodied in GATT.

Instead, it spelled out an alternative strategy of strong capital formation and

accelerating exports, both traditional and non-traditional, through
institutionalizing the practice of preference treatments of their exports,
together with financial assistance to fill the remaining "trade gap" (the amount
of the foreign exchange needed to maintain a minimum 5 per cent output
growth that could not be financed by export earnings). Thus, the key
development concept is "trade and aid".

5.2 STRUCTURE OF THE UNCTAD

As mentioned earlier, UNCTAD is an organ of the UN General Assembly,6
rather than a specialized agency equipped with its totally own independent
budget and supreme governing body. Its annual operational budget, which is
drawn from the UN regular budget, is approximately $57 million for 2005. In
addition, technical cooperation activities, financed from extra-budgetary
sources, amounted to approximately $30 million in 2005. In terms of structure,
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UNCTAD consists of the Conference, the Trade and Development Board
(TDB) and subsidiary intergovernmental bodies, together with the secretariat.

1. The Conference

As its name indicates, UNCTAD initially referred to a specific event, for

example the first session of the Conference held in Geneva from 23 March to
16 June 1964. Later in the same year, the UN General Assembly authorized
UNCTAD to become a permanent body and adopted its charter. There have
been periodic sessions held every four years. Since the first session, an
additional ten have been held:

▪ New Delhi, India (1 February - 29 March 1968)

▪ Santiago, Chile (13 April - 21 May 1972)

▪ Nairobi, Kenya (5-31 May 1976)

▪ Manila, the Philippines (6-29 May 1979)

▪ Belgrade, Yugoslavia (6 June - 2 July 1983)

▪ Geneva (9 July - 3 August 1987)

▪ Cartagena de Indias, Colombia (8-25 February 1992)

▪ Midrand, South Africa (27 April - 11 May 1996)

▪ Bangkok, Thailand (12-19 February 2000)

▪ Sao Paulo (13-18 June 2004)

The Conference is UNCTAD’s highest policymaking body and the forum

where member States make assessments of current trade and development
issues, discuss policy options and formulate global policy responses. It also
formulates major policy guidelines and decides on the programmes of work

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for the period before the next session. Currently, the Conference membership
consists of 192 member States.

Many intergovernmental and non-governmental organizations have also

actively participated in UNCTAD’s work (the Conference and meetings of its
subsidiary bodies). These periodic sessions, in the view of the UNCTAD
secretariat, should be seen not as isolated events, but as important stages in the
ongoing process of dialogue and negotiation on the central issues of trade and
development and international economic relations (UNCTAD 1985).

2. The Trade and Development Board (TDB)

To carry out the functions of the Conference between sessions, a 55-member

TDB (expanded in 1976 to include all UNCTAD members) was established as
the executive body of the Conference, to take action in implementing
Conference decisions and to ensure the overall consistency of UNCTAD's
activities with agreed priorities. It also ensures that the activities of the
Conference's subsidiary bodies conform with their mandate and are carefully
coordinated with other relevant international organizations.

The TDB also serves as a preparatory committee for future sessions of the
Conference, and is therefore responsible for preparing a provisional agenda
and the necessary documentation. The TDB – which used to meet twice a year,
but now only once in the autumn – reports annually to the UN General
Assembly through Economic and Social Council (ECOSOC). In addition to the
regular session, the TDB may meet in executive sessions, each normally lasting
only one day, on three occasions throughout the year with six weeks' prior
notice. The TDB executive sessions deal with policy, management and
institutional matters that cannot be deferred to the regular session.

Currently, there are three principal intergovernmental bodies:

1. The Commission on Trade in Goods and Services, and Commodities;

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 2. the Commission on Investment, Technology, and Related Financial
Issues; and

3. The Commission on Enterprise, Business Facilitation and

Development.

These Commissions usually meet once a year for five days. The UNCTAD
secretariat also services the Commission on Science and Technology for
Development, which is a subsidiary body of ECOSOC.

3. The UNCTAD secretariat

The offices of the UNCTAD secretariat are located within the United Nations
Office in Geneva’s complex, Le Palais des Nations. UNCTAD has a staff of
approximately 400, mostly economists, whose principal activities revolve
around servicing the Conference, the TDB and the deliberations of their
subsidiary bodies; they are also engaged in research (including policy analysis
and advice) and technical cooperation activities. At present, the substantive
part of the UNCTAD secretariat consists of four divisions and one office, this
structure reflects the reforms agreed at UNCTAD IX (1996).

a. The Division on Globalization and Development Strategies (DGDS)

It covers macroeconomic and development policies, as well as the international

monetary and financial system, and publishes an annual report, The Trade and
Development Report, which informs TDB deliberations on various current
international issues. The division also houses the UNCTAD statistical office, a
unit of technical assistance to Palestinian people, as well as a unit dealing with
technical assistance of debt management.

b. The Division on International Trade in Goods and Services, and

Commodities (DITC)

It covers trade in goods and services, commodities, competition policies and

the link between trade and the environment. The division also carries out
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capacity-building activities on trade-related matters for developing countries,
and provides substantive services to the Commission on Trade in Goods and
Services, and Commodities.

c. The Division on Investment, Technology and Enterprise

Development (DITE)

It covers international investment (particularly foreign direct investment)

issues, enterprise development and technology matters and publishes The
World Investment Report on an annual basis. The division also services the
Commission on Investment, Technology, and Related Financial Issues, as well
as the Commission on Science and Technology for Development.

d. The Division for Services Infrastructure for Development and Trade

Efficiency (SITE)

It has a strong technical assistance orientation and covers a variety of trade

facilitation issues, including transport, customs procedures, provision of trade-
related information and e-commerce. The division is responsible for the annual
publication of The Information Economy Report (formally known as The E-
Commerce and Development Report), as well as The Review of Maritime
Transport).

The Office of the Special Coordinator for Least Developed, Landlocked and
Island Developing Countries (OSC-LDC) coordinates UNCTAD's work on
these categories of countries. It also provides analyses of the broad
development challenges facing these countries and deliverers technical
assistance. The Office also publishes The Least Developed Countries Report
and houses a special unit covering issues related to Africa, which produces an
annual report on Economic Development in Africa. The Division of
Management includes the Administrative Services, the Technical Cooperation
Services and the Intergovernmental Affairs and Outreach Services (IAOS).

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Through its publications, the UNCTAD secretariat has also played a role in
raising issues, generating ideas and influencing thoughts, policies and actions
in national capitals, as well as in other institutions of the international system.
As mentioned earlier, the secretariat has directly interacted with many
developing countries (and more recently with countries in transition) through
various technical cooperation activities.

With its ultimate mandate being the maximization of the development

opportunities of developing countries, the UNCTAD secretariat is in the
position of a principal "interest articulator and facilitator" for these countries.
One of the major complaints voiced by developed countries about the
secretariat has been its lack of impartiality. More often than not, its close
association with developing countries has frustrated developed countries. The
first Secretary General of UNCTAD reportedly refuted this by claiming that
the secretariat "cannot be neutral on development problems, just as the
secretariat of the World Health Organization (WHO) cannot be neutral in the
drive to eradicate malaria (Prebisch, as cited in Walters, 1971: 821)".

4. UNCTAD decision-making: the group system

UNCTAD forums have an egalitarian system of decision-making where each

State member is allotted one vote. At the Conference, substantive decisions
require a two-thirds majority of the delegations present and voting. Procedural
motions only require a simple majority. Decisions in the other forums
(including the TDB) are all taken by a simple majority vote of those present
and voting.

A central feature of UNCTAD's decision-making process is that deliberations

in UNCTAD forums take place in the context of the group system. At
UNCTAD I, 77 developing countries presented their common interests under
the banner of the Group of 77 (G-77) as an effective political group. The formal
purpose of dividing UNCTAD member States into four groups —: Groups A,
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B, C and D — constituted according geographical and socio-economic criteria
was for the election of representatives to the TDB.

▪ Group A (61 members at the time of UNCTAD I) included African and

Asian State members and Yugoslavia and was allocated 22 seats in the
TDB;

▪ Group B, the developed market-economy countries with 22 seats;

▪ Group C: the Latin American and Caribbean countries with 9 seats; and

▪ Group D: the Socialist countries of Eastern Europe with 6 seats.

The G-77 consists of developing countries belonging to Group A and Group C.

The G-77 members have forged a common position and mutually agreed
proposals and apply concerted leverage with bargaining power in its
negotiations with Group B members. On the other hand, Group B members,
which largely coincide with the OECD membership, have also responded to
the demands made on them in a collective fashion.

Socialist countries formed their own group — Group D — which, until the end
of the 1980s, consistently denounced Group B and gave token support to the
G-77. This was because the main diplomatic thrust of the G-77 was directed to
Group B, their main trading partners, rather than to Group D. Therefore, the
Group D members had little difficulty in supporting the demand of developing
countries.

Members of each group have reinforced their own common understanding

and diplomatic stance vis-à-vis other groups. Thus, UNCTAD has arguably
been transformed into a forum where "intra-group" consensus is more
important than "inter-group" agreement (Williams 1994:188). Subsequently,
the unity of the G-77 has also spread to other UN forums, as well as to the
Bretton Woods institutions.

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The evaluation of the group system varies. Supporters defend it on two main
grounds. First, the diplomatic value of the group system lies in its catalytic role
in facilitating the decision-making process by providing for regular
consultation and consideration of positions. Second, the group system is
praised for its contribution to the formulation of principles and general policies
aimed at structural change. The unity of the G-77 is imperative in order to
legitimize its demand for change and to increase pressure on the international
community.

5.3 THE CHANGING INTERNATIONAL CONTEXT SURROUNDING UNCTAD

The international situation in which UNCTAD exists has been in a constant
state of movement and change, which has inevitably affected its operations.
This section will discuss the evolution of UNCTAD's activities in the past four
decades. For the purpose of analysis, the presentation is made by dividing the
post-war period into relatively distinct sub-periods.

a. Initial period: the 1960s and the early 1970s

In the field of trade, many concerned observers came to realize that the
principle of reciprocity in trade concessions would constitute a formidable
problem for the majority of developing countries.

After all, the principle of reciprocity, not to mention the principle of the most
favoured nation (MFN) treatment, was based on non-discriminatory
multilateralism, for example treating all countries on an equal footing
regardless of their stage of development. Consequently, considerable interest
was expressed in the possibility of introducing exceptional cases whereby
preferential tariffs by developed countries for exports from developing trade
partners should be implemented on a non-reciprocal basis.

This new emphasis on the trade and development problems of developing

countries culminated in a revision of the General Agreements of GATT in 1965

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and the addition of Part IV, a chapter on trade and development.17 It calls on
all GATT Contracting Parties to refrain from increasing trade barriers against
products of specific concern to the developing countries, gives priority to the
reduction and elimination of such barriers, and implements a standstill on
internal taxation on tropical products. It also calls for joint actions to promote
trade and development, which was the basis for establishing a Trade and
Development Committee in GATT to work on the elimination and reduction
of trade barriers.

Despite the fact that the Kennedy Round negotiations constituted the first
negotiating setting that followed the implementation of Part IV, the (limited)
participation of developing countries failed to create any decisive challenge to
the principles of reciprocity and the MFN treatment.

In fact, the general expectation was that as long as the principles of reciprocity
and of MFN treatment were upheld; it was unlikely that the Kennedy Round
would have brought about any substantive gains for developing countries.

I. UNCTAD I (Geneva 1964)

This historic Conference was held in Geneva from 26 March to 6 June 1964, and
attended by the representatives of 120 countries, together with those of
numerous international organizations. The substantive discussions were
grouped into six agenda items:

i. expansion of international trade and its significance for economic

development;

ii. international commodity problems;

iii. trade in manufactures and semi-manufactures;

iv. improvement of the invisible trade of developing countries;

v. implications of regional economic groupings; and

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 vi. institutional arrangements, methods and machinery to implement
measures relating to the expansion of international trade.

These agenda items were divided up among five substantive committees.

Towards the end of the Conference, member States took note of the reports of
these committees and took action on the draft recommendations included
therein. This working procedure of the Conference has continued to the
present.

The Final Act adopted by UNCTAD I contained, among others, the following
principal aims:

i. increasing market access for the developing countries' exports, both by

introducing preferential treatments of their manufactured and semi-
manufactured exports, as well as by reducing agricultural
protectionism;

ii. regulating and stabilizing commodity markets to offset the

deteriorating trend in the terms of trade of the developing countries by
raising primary prices to a remunerative level; and

iii. adopting measures to increase financial flows to the developing

countries, as well as to decrease the outflows from them.

Probably the most noteworthy achievement of UNCTAD I was the decision to

recommend the UN General Assembly that it authorize the UNCTAD’s
transformation into a permanent institution that would provide the basis for a
continuing debate and policymaking process aimed at trying to achieve
consensus among different countries. The General Assembly subsequently
agreed to this recommendation.

II. UNCTAD II (New Delhi 1968)

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In October 1967, the G-77 developing countries held a ministerial meeting –
now standard practice before each Conference – as their own final preparatory
process for UNCTAD II. Group B and Group D also held their own
consultative meeting to clarify their respective group positions. Meanwhile,
the TDB, the four principal committees and other intergovernmental bodies
considered various substantive issues.

This building-up of a body of technical expertise and knowledge of the various

groups' positions continued until the fifth session of the TDB just before the
Conference. Secretary General Prebisch thought that several "points of
crystallization" had emerged during the preparatory process as possible topics
for which concrete measures could be agreed for adoption. These points were:

i. manufactures and semi-manufactures (basically a general preference

scheme in favour of developing countries);

ii. financing;

iii. shipping (greater participation in shipping by developing countries);

iv. commodity policy (price support/stabilization and diversification);

v. trade relating among developing countries;

vi. trade of developing countries with socialist countries; and

vii. others.

Another noteworthy event that evolved towards the end of the 1960s was the
institutional decision whereby UNCTAD became a participating agency for
the United Nations Development Programme (UNDP), the original idea had
been advanced at UNCTAD II. In 1969, a Technical Coordination Unit was
established within the UNCTAD secretariat. In subsequent years, the
UNCTAD secretariat became increasingly active in providing technical
assistance to developing countries.
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III. UNCTAD III (Santiago 1972)

The third Conference was held in Santiago, Chile from 13 April to 21 May 1972,
with the participation of representatives of 131 member countries, including,
for the first-time representatives of China, together with those of numerous
international organizations. The Conference was held after the first movement
in the breakdown process of the Bretton Woods monetary system. All
participants understood that the basic mission of UNCTAD III was to promote
the implementation of the most essential objectives and commitments of the
International Development Strategy for the Second UN Development Decade.

The initial shock took place in August 1971 when the United States announced
that its monetary authorities would no longer maintain the US Dollar-gold
exchange rate, and would allow the foreign exchange rate to float. In December
of the same year, the Group of Ten developed countries reached the
Smithsonian agreement, by which the US Dollar was devalued in terms of gold
and the major currencies were appreciated in terms of this key currency.

The Smithsonian Agreement, however, proved to be only a temporary solution

to the crisis. A second devaluation of the US Dollar was announced in February
1973, and before long Japan and the EEC countries decided to let their
currencies float. At that time, these events were thought of as temporary
measures to deal with speculation and capital shifts, but they turned out to the
permanent measures to end of the system of established par values.

b. The period of systemic turbulence: the 1970s

The 1970s witnessed the rise and fall of so-called "commodity power", the
continued disintegration of the international monetary system, an erosion of
the multilateral trading system, and a slowdown in world economic growth
rates. All induced adverse consequences for trade and economic development
of many developing countries.

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Commodity prices – not just the price of oil, but the prices of a number of other
industrial raw materials, food and tropical beverages – had risen sharply in the
first half of the 1970s. The example of the oil cartel in particular suggested to
developing countries that other commodities could be also cartelized. In the
1970s, the operations of the Organization of Petroleum Exporting Countries
(OPEC) were without doubt the most important factor affecting the
international political and economic scene.

As a result, developing countries were keen to consolidate the progress that

had been made in the market, with a new and strong perception that
meaningful negotiations could be arranged between grossly unequal partners
of developing countries.

IV. UNCTAD IV (1976)

By the time UNCTAD IV took place, the prices of many commodities had
fallen well below their 1974-1975 peak. The Conference was dominated by
discussions on the Integrated Programme for Commodities (IPC). In contrast
to previous approaches, the essential characteristic of the IPC was the objective
of dealing with commodity problems in a "comprehensive and systematic"
fashion. It stipulated those agreements for 18 specific commodities would be
negotiated or renegotiated within the UNCTAD framework with the principal
objective of stabilizing them "at a level remunerative to the producers and
equitable to the consumers".

The IMF had been closely monitoring the fixed exchange rate system in the
post-war period and had failed to prevent its eventual collapse. The unilateral
decision of the United States on 15 August 1971 to suspend dollar-gold
convertibility, without prior consultation with other major industrial countries
or the IMF, triggered the initial debacle of the Bretton Woods system. The
attempt to create a new system of fixed parities through the Smithsonian
Agreement of December 1971 ended in failure, which led to the floating of all
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the major currencies in April 1973. The initiative of the principal industrialized
countries to coordinate policy among themselves (through the Group of 10)
rather than in IMF forums had the effect of marginalizing the function of the
IMF. To some observers, therefore, it appeared in the 1970s that the IMF was
heading for extinction.

V. UNCTAD V (1979)

At UNCTAD V, an attempt was again made by developing countries to initiate

wide-ranging negotiations basically along the lines of the UN General
Assembly Resolution 3202 (S-VI) on the Programme of Action on the
Establishment of a New International Economic Order. These countries
claimed that all issues relevant to their well-being ought to be dealt with in a
comprehensive dialogue. This was rejected by Group B members which, as
mentioned earlier, were now less fearful of commodity power.

c. The "second" Cold War and global recession: the 1980s

At the very end of the 1970s, we began to witness the re-emergence of

superpower rivalry23 and the commitment of massive resources to
armaments. In the first half of the 1980s, we also found ourselves in an
environment of global economic recession and crisis characterized by inflation
and unemployment and serious payments problems. The situation was
particularly devastating for most developing countries. In effect, meaningful
North-South negotiations ended at UNCTAD V (South Commission, 1990:
217). Two years later, in 1981, the Cancun Summit took place with 22 countries
taking part and was co-chaired by the President of Mexico and the Prime
Minister of Canada. The Summit was held to find political support for a
sustained process of North-South negotiations, but once again, it was
unsuccessful. The 1980s as a whole would later be characterized as "the lost
decade for development", with sub-Saharan African countries suffering the
most severely.
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As far as developing countries were concerned, deterioration in terms of trade,
high interest rates, falling concessional assistance and restrictions on lending
by commercial banks (particularly after the debt crisis of 1982) left them no
recourse but to become more receptive to the adjustment lending of the Bretton
Woods institutions. Diversification among developing countries in terms of
their development strategies and performance increased in the 1980s. It
became increasingly more difficult for them to maintain their solidarity in
multilateral diplomatic forums, although the G-77 was reluctant to accept the
principle of differentiation among its members.

Meanwhile, the UNCTAD secretariat became increasingly concerned with a

specific subgroup of the G-77, the least developed countries (LDCs). The
United Nations Conference on the Least Developed Countries was held in
Paris from 1 to 14 September 1981. The Secretary-general of UNCTAD was
designated as Secretary-General of this Conference; the UNCTAD secretariat
served as its secretariat, and an UNCTAD intergovernmental group served as
its Preparatory Committee.

VI. UNCTAD VI (1983)

By the time of UNCTAD VI, the drive for international economic restructuring
had appeared to be unrealistic, particularly in the light of the newly-formed
conservative administrations in some of the principal industrial countries.25
At the Conference, another attempt was made to revive the North-South
dialogue which was based on a revised rationale: "the need to reactivate
development in the South as an essential means of stimulating the global
economy and reinforcing recovery in the industrialized countries themselves".
This was again turned down by the industrialized countries, which argued
that recovery in their economies was already under way and would in due
course spill over to developing countries.

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VII. UNCTAD VII (1987)

As there had been no offer forthcoming from a developing country to host the
Conference, UNCTAD VII was held in Geneva. On the eve of unexpected,
international political turbulence with global ramifications, UNCTAD VII
reiterated virtually the same elements of international action as it had in the
previous Conference.

There were new noteworthy developments in international development

around this time. One of them was the Common Fund for Commodities. The
Common Fund (CF) was a mechanism agreed in 1980 for stabilizing the
commodities markets by financing buffer stocks of specific commodities, as
well as commodity development activities such as research and marketing.

Another new and noteworthy event was the launch of the Global System of
Trade Preferences (GSTP), a system of trade preference among developing
countries. The initial proposal had been discussed among G-77 members in the
early 1970s and presented at UNCTAD IV (1976).

d. Global uncertainty: the period from the mid-1980s to the mid-1990s

For some years at least, GATT appeared be successful in lowering high tariff
walls and expanding world trade considerably. Nevertheless, non-tariff
barriers (NTBs) had also risen to such an extent that much of the progress that
had been made was undone. In the 1980s, many observers viewed the initiative
to form regional free trade frameworks in the western hemisphere, and greater
momentum among the European Community (EC) member countries for
deeper integration, as a threat to universal multilateralism.

These initiatives were accompanied by "result-oriented, bilateral reciprocity"

(even on a sectoral basis) in relations with those outside of their respective
regions (particularly in the case of the NAFTA), and were armed with a tightly
recognized economic and institutional integration of geographically specific

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 national economies (in the case of the EU). These were in contrast with a "rule-
based, multilateral reciprocity" in accordance with the MFN treatment and
"generalized" reciprocity.

Towards the end of the 1980s, we witnessed the beginning of the most
dramatic political changes of the post-war period: the socialist regimes in
Eastern and Central Europe collapsed in a rapid succession and the Soviet
Union disintegrated in 1991. It was in response to economic and security
concerns arising from frustrations and tensions in the former socialist
transition countries that the new impetus for global cooperation was
generated. With political changes taking place in many parts of these
economies, the concept of development as taken up in UN forums rapidly
evolved, and was now widely understood to be linked to a multidimensional
undertaking and a people-centred process. Furthermore, various social and
environmental issues associated with development activities began to be
discussed more seriously within UN forums. Meanwhile, the role of the
Bretton Woods institutions in the management of international economic
relations was further enhanced as they were assigned a central role in assisting
the economies in transition.

VIII. UNCTAD VIII (1992)

Against the background of these dramatic political and economic changes in

the international community, one of the immediate concerns of UNCTAD VIII
was how to meet the large and growing financial needs of the transition
countries without diverting development resources, particularly flows, away
from traditional recipients, for example developing countries. The transition
countries also presented a systemic challenge how their integration into the
international financial system could be carried through without creating
undue stress on the system itself.

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As for international trade, the Conference reaffirmed the need to curtail
protectionism and maintain an open and non-discriminatory trading system.
But the scope of multilateral trade negotiations for example the ongoing
Uruguay Round negotiations since 1986 – was vastly expanded to include
trade in services, intellectual property, environment-related issues, trade
policy reforms, improvement in competition, facilitation of structural
adjustment and the optimization of the relationship between investment and
technology.

One of the most significant decisions made at UNCTAD VIII that would
critically affect negotiations in UNCTAD was the extensive reorganization of
the intergovernmental machinery. Particularly critical was the abolition of the
Commission on Invisibles and Financing-related to Trade (CIFT), one of its
oldest bodies. It curtailed the contribution of UNCTAD to the debate on the
international financial architecture. Since then, issues related to financial
architecture have only been discussed in a lukewarm fashion, under the
agenda item of "interdependence" at the TDB.

e. Period of reform: The mid-1990s onward

The post-Cold War period heralded a period in which the "cost of peace"
resulting from increasing armed conflicts was taken into consideration. The
arms race, civil wars (in the form of ethnic cleansing and separatist activities)
and various kinds of conflict in developing countries, further drew advanced
countries and the UN into costly peace-making and peacekeeping operations
in various parts of the world. At the same time, there was increasing
call/pressure for reforming the UN system with a view to improving its
efficiency, streamlining its organizational structure and making its field
operations more effective.

At the end of 1993, meanwhile, the long and difficult negotiations of the GATT
Uruguay Round were successfully completed, and the decision was taken to
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create the World Trade Organization (WTO) as of January 1995. The new
organization was assigned a broad mandate which extended far beyond tariff
reduction, bringing into the ambit of the multilateral trading system a number
of what had traditionally been seen as domestic or non-trade issues, such as
intellectual property, investment measures and services.

Furthermore, by introducing a "single undertaking" character into the

multilateral trading system, it virtually ended the option previously available
to developing countries to opt out of obligations under some of the multilateral
trade agreements. At this stage, concerns were raised about possible
duplication of work between UNCTAD and WTO; however, it subsequently
became clear that far from duplicating each other, UNCTAD and WTO
complemented one another with the latter playing a crucial role in assisting
developing countries to better prepared themselves for their negotiations at
the WTO.

IX. UNCTAD IX (1996)

In the run-up to UNCTAD IX, and in pre-Conference negotiations in Geneva,

both developed and developing countries repeatedly stressed the
complementarity of UNCTAD and WTO. The main theme of UNCTAD IX was
the opportunities and dangers that globalization and liberalization posed for
sustainable development. The Conference confirmed the responsibility of each
country for its own development and the supremacy of market principles in
managing economies.

It highlighted that globalization involves both opportunities and risks and that
the international community should provide assistance to developing
countries in their efforts to integrate into the global economic system and
maximize the benefits they derive from that system. UNCTAD's role in
assisting developing countries in their integration into the international

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trading system by building their supply capacities and their ability to
participate effectively in the multilateral trade negotiations was also stressed.

X. UNCTAD X (2000)

UNCTAD’s tenth Conference was held in Bangkok, Thailand, under the

banner "Developmental Strategies in an Increasingly Interdependent World";
the choice of Thailand as the Conference venue was timely as the country had
experienced both the positive and negative aspects of globalization. Many
observers welcomed the Conference, claiming that it was being held at an
auspicious moment for developing countries. It was the first international
conference on global economic issues after the failure of the third WTO Seattle
Ministerial Meeting of 1999 to launch a new round of multilateral trade
negotiations. Naturally, much of the attention at the Conference was paid to
WTO-related issues.

The Conference provided an excellent opportunity to discuss ways and means

to deal with economic globalization for the aim of guiding its positive effects
towards improving of the world economy, particularly in the developing
countries. Nevertheless, there was no clear-cut sign of a North-South
convergence of views regarding governance. Developing countries continued
to stress the need for improving governance at the international level
(particularly as regard their market access to developed countries), while
developed countries generally emphasized good governance at the national
level (referring to rule of law, the fight against corruption, respect for human
rights, etc).

XI. UNCTAD XI (2004)

UNCTAD XI was held in São Paulo, Brazil and coincided with the 40th
anniversary of the organization. In the same manner at UNCTAD X, the São
Paulo Conference was also held after the failure of the WTO Ministerial
Meeting in Cancun (2003). The main theme of the Conference was "Enhancing
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coherence between national development and global economic process
towards economic growth and development, particularly of developing
countries".

This Conference theme was based on the belief that resorting exclusively either
to national responses or to international processes would not resolve the
poverty problems of developing countries. These countries should address the
challenge of integrating into the international economy under conditions
conducive to their development, where central to this challenge should be the
need to identify development strategies and policies that would strengthen
their productive capacity and enhance their competitiveness. In this regard,
the interface and greater coherence between internationally agreed disciplines
and commitments on the one hand, and the development strategies that
developing countries need to pursue to achieve their development objectives
on the other, are critical.

One noteworthy and positive event during UNCTAD XI was the launch of the
third round of "the Global System of Trade Preference among Developing
Countries" (GSTP), a major instrument for the promotion of "South-South"
trade.

UNCTAD has highlighted the supply-side constraints of developing countries

for many decades, and has gained significant experience in addressing them
through analytical and technical cooperation activities in this area. Some of the
areas where UNCTAD could make a key contribution to the Aid for Trade
initiative include:

a. Capacity-building on trade policymaking, ranging from assistance in

the process of accession to WTO to policy advice on how best to
strengthen the services sector.

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 b. Trade and competition policy (adoption/updating of national
competition laws and related disciplines in trade agreements). So far,
UNCTAD has assisted in the formulation and implementation of
competition legislation in 25 developing countries and eight regional
groups. o Trade facilitation platforms (integrated trade and transport
facilitation country projects, technology-based automated customs
system (ASYCUDA). UNCTAD's customs software has been installed
in more than 80 developing countries, and has achieved a significant
reduction in the time needed for Customs clearance. In Zimbabwe, the
average amount spent clearing Customs was shortened from a little
over two weeks to one day.

c. Advice on investment policies and strategies and investment

promotion activities. o Enterprise development activities (EMPRETEC,
establishing specialized trade finance services, building a regulatory
environment and key institutional set-up of modern ICT-based trade-
related finance).

d. Transport and trade logistics (linking national/regional systems to

global transport operators and networks).

The renewed interest in strengthening the supply capacities of developing

countries could be seen as a vindication of UNCTAD's efforts over the course
of the past four decades. It is to be hoped that, beyond that, the Aid for Trade
initiative will also give the organization the opportunity to significantly
strengthen its contribution to the equitable integration of developing countries
into the world trading system.

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5.4 UNCTAD ACHIEVEMENTS
Intergovernmental negotiations held under UNCTAD’s auspices have
resulted in international agreements in areas covering trade, commodities,
debt management, transport and special categories of developing countries.

i. Trade

General System of Preference (GSP) (1971): Every year over $60 billion of
developing country exports receive preferential treatment in developed
country markets due to the GSP.

Agreement on a Global System of Trade Preference (GSTP) among developing

countries (1989).

Set of Multilaterally Agreed Equitable Principles and Rules for the Control of
Restrictive Business Practices (1980).

Global Trade Point Network (GTPNet), following the UN International

Symposium on Trade Efficiency (1994).

ii. Commodities

International commodity agreements covering, among others, cocoa, sugar,

natural rubber, jute and jute products, tropical timber, tin, olive oil and wheat.
The Common Fund for Commodities, set up to provide financial backing for
the operation of international stocks and for research and development in the
field of commodities (1989).

iii. Debt Management

More than 50 poor developing countries have benefited from debt relief of over
$6.5 billion since a resolution of the retroactive adjustment of the ODA debt of
low-income developing countries was approved by the TDB (1978).

Guidance for international action in the area of debt rescheduling (1980).

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 iv. Least Developed, Land-locked and Transition Countries

UNCTAD has played a leading role in mobilizing international support for the
least developed countries (LDCs), including through:

Agreement on a Global Framework for Transit Transport Cooperation

between Landlocked and Transit Developing Countries and the Donor
Countries (1995),

Special New Programme of Action for the LDCs (1981).

Programme of Action for the LDCs for the 1990s (1990).

v. UNCTAD has also initiated or facilitated the following decisions:

Agreements on ODA target, including the 0.7 per cent of GNP target in donor
countries, for developing countries in general, and the 0.15 per cent target for
LDCs.

Improvement of International Monetary Fund's Compensatory Financing

Facility for export shortfalls of developing countries,

Creation of the Special Drawing Rights (SDRs) by the IMF.

Reduction of commercial bank debt for the heavily indebted poor countries
(HIPCs).

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6 THE AFRICAN CONTINENTAL FREE TRADE AREA

The African Continental Free Trade Area (AfCFTA) provides a unique

opportunity for countries in the region to competitively integrate into the
global economy, reduce poverty, and promote inclusion. Although Africa has
made substantial progress in recent decades in raising living standards and
reducing poverty, increasing trade can provide the impetus for reforms that
boost productivity and job creation, and thereby further reduce poverty.

AfCFTA would significantly boost African trade, particularly intraregional

trade in manufacturing. The volume of total exports would increase by almost
relative to business as usual. Intracontinental exports would increase by more
than 81 percent, while exports to non-African countries would rise by 19
percent. This would create new opportunities for African manufacturers and
workers.

These gains would come, in part, from decreased tariffs, which remain
stubbornly high in many countries in the region. Even greater gains would
come from lowering trade costs by reducing nontariff barriers and improving
hard and soft infrastructure at the borders—so-called trade facilitation
measures. These measures would reduce red tape, lower compliance costs for
traders, and ultimately make it easier for African businesses to integrate into
global supply chains.

6.1 THE AFRICAN TRADE LIBERALISATION FRAMEWORK

The aim of this Chapter is to provide a synopsis of the provisions found in the
main African Union and Regional Economic Communities (REC) constitutive
documents that are of relevance to the establishment of a Common Market.
The profiles of the agriculture sector in each REC are also examined bringing
out the key elements and their status in line with overall regional integration

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scheme in doing so, it is observed that some similarities in the provisions
emerge, which can form the basis of the Common market preferential area.

6.2 THE AFRICAN UNION (AU)

The genesis of a concerted effort to integrate the African continent
economically can be traced directly to the Lagos Plan of Action and to the OAU
Charter. This effort resulted in the adoption of the Treaty Establishing the
African Economic Community (Abuja Treaty) in June 1991. The Treaty entered
into force on 12 May 1994. The AEC was established as an integral part of the
OAU with the primary aim of promoting the integration of African economies.
It is important to remember that though the provisions of the Abuja Treaty
state that the Parties establish among themselves an African Economic
Community, the Treaty can be more accurately described as a framework or
interim agreement for the formation of an Economic Community. This is
because some of the elements generally accepted as characterising an economic
community such as the harmonisation of fiscal and other economic policies are
not fully in place.

The integration strategy adopted by the Abuja Treaty is based on the use of
Regional Economic Communities (RECs) as ‘building blocks’ for the eventual
continental trade bloc. Though the Treaty provided for the creation of five
RECs corresponding to the five regions recognised by the OAU, there are
currently eight RECs that have been recognised as AEC building blocks.
Member States of the AU thus have the twin obligations of complying with the
Abuja Treaty’s provisions as well as those of the RECs to which they belong.

Underpinning principles

The principles underpinning the AEC as set out in Article 3 include ‘inter-State
cooperation, harmonisation of policies and integration of programmes; and the
promotion of harmonious development of economic activities among Member

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States10.’ The objectives of the AEC as stated in Article 4 include, inter alia, the
integration of African economies and the co-ordination and harmonization of
policies among existing and future economic communities in order to foster
the gradual establishment of the Community. Article 4 further states that
among the steps to be taken to attain the objectives of the Community are the
harmonisation of national policies in the field of agriculture and the
establishment of appropriate organs for trade in agricultural products.
Member States also agree to grant ‘special treatment to those Member States
classified as least developed countries’ and to adopt ‘special measures in
favour of land-locked, semi-land-locked and island countries.’ An additional
provision that can be regarded as setting out an underlying principle of the
AU is found in Article 88 which provides that ‘The Community shall be
established mainly through the coordination, harmonisation and progressive
integration of the activities of the regional economic communities.’

The establishment of a common market for agricultural products is therefore

consistent with the underlying principles found in the Abuja Treaty. It is also
consistent with the objectives of the African Union which include, inter alia,
accelerating the political and socio-economic integration of the continent,
promoting sustainable development at the economic, social and cultural levels
as well as the integration of African economies, and coordinating and
harmonizing the policies between the existing and future RECs for the gradual
attainment of the objectives of the Union.

Harmonisation of laws

Provisions obliging Members to co-operate in harmonising laws are to be

found in a number of Abuja Treaty Articles. These include Articles 3(c) and (d),
4(1)(d), and 5(1). Article 5(1) is particularly relevant. It provides that:

10 AEC Treaty, Article 3(c) and (d)

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 Member States undertake to create favourable conditions for the
development of the Community and the attainment of its objectives,
particularly by harmonising their strategies and policies. They shall
refrain from any unilateral action that may hinder the attainment of
the said objectives.11

Moreover, under Article 88, ‘Member States undertake to promote the co-
ordination and harmonisation of the integration activities of regional economic
communities of which they are members with the activities of the
Community…’ By virtue of these provisions, Members would therefore be
under an obligation to implement any measures agreed on to establish a
common market for agricultural products. However, in view of the language
used, it is quite possible to interpret these provisions as being ‘best
endeavours’ obligations that are subject to the capacity of the Members to
implement them.

Trade liberalisation programme

The Abuja Treaty’s integration strategy sets out a programme that reflects
what is commonly described as the market integration model41. This
programme is to be affected over a lengthy transitional phase which, however,
is not to exceed a cumulative period of 40 years. The Abuja Treaty relies on the
RECs to provide the foundation for the establishment of the Economic
Community with the AEC playing a coordinating role.

The establishment of customs unions within the Community is based on the

undertaking by each Member State to progressively establish customs unions
within the individual RECs pursuant to the timeline set out in Article 6 of the
Treaty12. This timeline is to lead in time to the establishment of a continental

11 AEC Treaty, Article 5(1)

12
AEC Treaty, Article 29

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customs union, followed by a common market and eventually a monetary
union. Article 30 elaborates on the obligation of Members to reduce and
ultimately eliminate customs duties at the level of the RECs in accordance with
programmes to be set out by each individual REC. During this process, the
Assembly is supposed to take the necessary measures to co-ordinate and
harmonise the steps being taken by the RECs.

The elimination of non-tariff barriers

Non-tariff barriers are defined somewhat broadly in the Abuja Treaty as

encompassing ‘barriers which hamper trade and which are caused by obstacles
other than fiscal obstacles. It can therefore be assumed that this sweeping
definition covers measures such as quantitative restrictions and licences.
Article 31 provides for the elimination of non-tariff barriers to intra-
Community trade. This elimination is to take place at the level of each REC in
the first instance and is to be concluded by the end of the third stage for
example by 2017.

Most-favoured nation principle

The Abuja Treaty obliges Members to ‘accord one another, in relation to intra-
community trade, the most-favoured-nation treatment’13. Unlike, for instance,
the COMESA Treaty, the Abuja Treaty does not define most-favoured-nation
treatment. Whether intra-community here refers to trade within the individual
RECs or the Community as a whole is unclear. An interpretation of
‘community’ based on Article 1 would support the wider application of the
MFN obligation.

However, this would render the whole trade liberalisation programme based
on the RECs superfluous as any preferences extended within the RECs would
have to be extended to all other AU countries. Given that this is not the case

13
AEC Treaty, Article 37

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and that the programme set out in Article 6 is an integral part of the Treaty, it
can be concluded that under the Abuja Treaty, MFN is to be interpreted
restrictively.

Trade in agriculture

Chapter VIII of the Abuja Treaty sets out provisions regarding Food and
Agriculture. Article 46 sets out various areas in which the Members agree to
cooperate with regard to agricultural development and food production. Most
of the provisions are concerned with increasing the productivity of the
agricultural sector and the protection of prices of export commodities.
However, Article 46(2)(e) provides that Members are to cooperate in the
‘harmonisation of agricultural development strategies and policies at regional
and Community levels, in particular, in so far as they relate to production,
trade and marketing of major agricultural products and inputs.

Article 47 then states that for the purposes of the Chapter, ‘Member States shall
cooperate in accordance with the provisions of the Protocol on Food and
Agriculture.’ In drafting a Protocol for a Common Market in Agricultural
Products, one crucial issue that will need to be determined is the relationship
between the Common market Protocol and the Article 47 Protocol. Given that
there is presently no Protocol on Food and Agriculture, there will be a need to
ensure complementarity between it and the Common market Protocol when
the former is eventually negotiated and concluded. It should be noted that no
mention is made of establishing a common agricultural policy in the Abuja
Treaty. It may be that this is one of the purposes that the Article 47 Treaty is
meant to serve.

Trade remedies

Article 36 of the Abuja Treaty defines and prohibits dumping but does not
specify what measures are to be taken against a Member State that engages in

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dumping. Dumping is defined as meaning ‘the transfer of goods originating
from a Member State to another Member State for them to be sold:

a. at a price lower than the usual price offered for similar goods in the
Member State from which those goods originate, due account being
taken of the differences in conditions of sale, taxation, transport
expenses and any other factor affecting the comparison of prices;

b. in conditions likely to prejudice the manufacture of similar goods in the

Member State48.’

In substance, this provision is similar to that found in Article VI of GATT 1994,

though the language used in the Abuja Treaty refers to dumping being
prejudicial to the manufacture of similar goods rather than the ‘material
injury to an established industry’ or material retardation of an infant industry
language used in GATT 1994. The Abuja Treaty is largely silent on the issue
of subsidies, leaving them to be the subject of a Protocol concerning Non-
Tariff Trade Barriers.

Safeguard measures

The Abuja Treaty permits the imposition of safeguard measures in the form of
quantitative or similar restrictions or prohibitions in three situations:

▪ Firstly, for the purpose of overcoming balance of payment difficulties;

▪ Secondly, for the purpose of protecting an infant or strategic industry;

and

▪ thirdly, where imports of a particular product are causing or likely to

cause serious damage to the economy of the importing state.

However, in all these instances, it is the ‘competent organ of the Community’

which is to give the green light for the imposition of the measures and, in the
case of balance of payment difficulties and protection of infant or strategic

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industries, the measures are only to be applied for a period specified by the
competent organ.

Sanitary and phytosanitary measures

The Abuja Treaty provides for exceptions to the free movement of goods in
Article 35 which provides, inter alia, that Member States ‘may impose or
continue to impose restrictions or prohibitions affecting … the protection of
human, animal or plant health or life’. Before imposing such restrictions,
Members are to make their intention known to the Secretariat of the
Community. The Treaty also provides that in no case are the restrictions to ‘be
used as a means of arbitrary discrimination or a disguised restriction on trade
between Member States.’

Further provisions relating to the issue of standards can be found in Article 67,
where Member States agree to:

a. adopt a common policy on standardisation and quality assurance of

goods and services among Member States;

b. undertake such other related activities in standardisation and

measurement systems that are likely to promote trade, economic
development and integration within the Community; and

c. strengthen African national, regional and continental organisations

operating in this field.

Rules of origin

Article 33 of the Abuja Treaty provides, inter alia, that:

The definition of the notion of products originating in Member

States and the rules governing goods originating in a third States
(sic) and which are in free circulation in Member States shall be
governed by a Protocol concerning the Rules of Origin.

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Given that no such Protocol has yet been concluded, each REC currently relies
on its own Rules of origins to determine which products are eligible for
preferential treatment. This is one aspect where early harmonization of
regulations is required in order for the Common market to operate. For the
purpose of implementing the Common market it will be necessary to
incorporate Rules of origin into the Protocol either by means of an Annex or as
a substantive Article in the Protocol. If the rules can be kept brief and straight-
forward the latter option would be preferable, whereas if the rules are fairly
detailed, then it might be best to include them in an Annex.

6.3 THE COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA

(COMESA)
Background

COMESA is one of the regional economic communities recognised as a

building bloc of the AEC under the Abuja Treaty. It was established with the
signing of the Treaty Establishing the Common Market for Eastern and
Southern Africa in 1993, that is, two years after the adoption of the Abuja
Treaty. It currently comprises 19 countries ranging from Egypt and Libya in
the North to Swaziland in the South. With regard to EPA negotiations, 15
COMESA Member States are negotiating under the ESA-EU EPA
configuration. In light of the fact that five of these countries (Madagascar,
Malawi, Mauritius, Zambia and Zimbabwe) are also Members of SADC and
an additional five are Members of EAC (Burundi, Kenya, Rwanda, Tanzania
and Uganda). This could pose a problem concerning future harmonisation of
integration policies if the Agreements that result from the negotiations are not
closely co-ordinated.

The economic objectives of COMESA include the promotion of ‘a more

balanced and harmonious development of its production and marketing
structures’, the promotion of ‘the joint adoption of macro-economic policies

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and programmes and cooperation ‘in the creation of an enabling environment
for foreign, cross border and domestic investment

Underpinning principles

The underlying principles guiding the operation of the organisation are set out
in Chapter Three of the COMESA Treaty. The relevant principles for the
purposes of this study include contributing towards the establishment and
realisation of the objectives of the African Economic Community, enhancing
food sufficiency and cooperating in the export of agricultural commodities and
adhering to the principle of inter-State cooperation, harmonisation of policies
and integration of programmes among the Member States.

Harmonisation of laws

In Article 414, one of the specific undertakings made by Member States in the
field of economic and social development is to ‘harmonise or approximate
their laws to the extent required for the proper functioning of the Common
Market’. More generally, Member States are to ‘take steps to secure the
enactment of and the continuation of such legislation to give effect to this
Treaty and in particular…to confer upon the regulations of the Council the
force of law and the necessary legal effect within its territory.’

This provision is a reference to the Council’s power conferred upon it by

Article 10 to make regulations which ‘shall be binding on all the Member States
in [their] entirety.’ Member States thus have an obligation to take the necessary
steps to implement measures leading to the establishment of a common
market.

One of the areas where harmonisation of laws is critical is that of goods

classification for customs purposes. In this regard, Article 64(2) of the Treaty
provides that Members undertake to adopt a uniform, comprehensive and

14
COMESA Treaty, Article 4

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systematic tariff classification. Pursuant to this provision, COMESA Member
States have adopted the Harmonized System (HS), 2002 version.

Trade liberalisation programme

The COMESA Treaty obliges Member States to eliminate customs duties and
other charges of an equivalent effect on imports, in the course of progressively
establishing a customs union. In Article 46, a deadline of the year 2000 was set
for the elimination of customs duties and other charges of an equivalent effect.
Pursuant to this provision, a COMESA ‘free trade area’ was established in 2000
and as of 31 May, 2007, 13 Members had joined the free trade area and were
trading on a tariff free basis.

The other Members continue to impose tariffs on imports from other Members
which, in the case of Swaziland, are those determined by its status as a SACU
Member. The expansion of the FTA is a major undertaking in the region as it
prepares for the customs union (a delay of eight years) by 2008 and a Common
Market by 2014.

Non-tariff barriers

Article 45 of the COMESA Treaty provides, inter alia, that in the process of
establishing a COMESA customs union, ‘non-tariff barriers including
quantitative or like restrictions or prohibitions and administrative obstacles to
trade among the Member States shall’ be removed. Accordingly, quantitative
restrictions as a non-tariff barrier to trade should, theoretically, no longer be
an issue with regard to trade within the COMESA bloc.

The requirement in the Treaty that Member States ‘remove immediately upon
the entry into force of the Treaty, all the then existing non-tariff barriers to the
import’ of goods originating in other Member States, can be interpreted to
include a ban on licensing requirements for such imports, which were to have

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been eliminated unless justified by some other provision such as the security
and other restrictions found in Article 50.

Trade in agriculture

The COMESA trade bloc, as a REC, has made good progress in identifying
issues that have constrained trade in agriculture and proposing measures that
can be taken to enhance trade in agriculture. These are set out in a ‘Report on
the Harmonisation of Agricultural Policy for COMESA countries. The Report
states that in ‘the medium to long term, the emphasis in agriculture will be on
the adoption and implementation of the COMESA common agricultural policy
and strategy’. It states that the objectives of the CAP should be:

a. to increase overall agricultural productivity;

b. to ensure regional food security;

c. to increase intra and extra COMESA agricultural trade;

d. to increase value addition to exportable commodities;

e. to eradicate and control major diseases and pests of livestock and crops;
and

f. to develop the irrigation potential of the region so as to mitigate

drought effects

One important point made by the Report is the need to ensure ‘that there
continue to be marked differences in national agricultural policies between
member states and that harmonisation be restricted to areas where it is
necessary to exploit the potential of the free trade area. This is because a
complete harmonisation ‘would result in national policies that were unsuited
to national conditions.’ The COMESA Treaty itself provides that in the field of
agriculture, Members are to:

a. co-operate in the agricultural development (sic);

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 b. adopt a common agricultural policy;

c. enhance regional food sufficiency;

d. co-operate in the export of agricultural commodities;

e. co-ordinate their policies regarding the establishment of agro-

industries;

f. co-operate in agricultural research and extension; and

g. enhance rural development

Rules of origin

Under the COMESA Treaty, goods are accepted as eligible for Common
Market tariff treatment if they originate in the Member States. The definition
of products originating in the Common Market is set out in a Protocol on the
Rules of Origin for Products to be traded between COMESA States. Under
these Rules, there are five criteria under which products can qualify to be
considered as originating within the region.

The first of these is where goods have been wholly produced in a Member
State. The second is goods produced wholly or partially from imported
materials that have undergone a production process that results in a
transformation such that the CIF value of those materials does not exceed 60
percent of the total cost of materials used, or thirdly, the value-added during
production accounts for at least 35 percent of the ex-factory cost, or fourthly,
there is a change of tariff heading.15 The fifth criterion is for products included
on a list approved by the Council as being of particular importance and
containing not less than 25 percent value added.

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Towards an African Common Market for Agricultural Products

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Safeguard provisions

The taking of safeguard measures in ‘the event of serious disturbances

occurring in the economy of a Member State following the application of the
provisions’ of the Treaty is permitted under Article 61 provided the Member
State first informs the Secretary General and the other Member States. This
provision is similar to that found in the Abuja Treaty referred to above. Any
Member State can impose quantitative or like restrictions or prohibitions for
the purposes of protecting infant industries, provided the measures are
applied on a non-discriminatory basis.

Status of regional integration and food trade in COMESA

Amongst the core RECs in Africa, COMESA is one that has taken significant
strides in enhancing its regional integration efforts in response to the many
challenges ranging from acute poverty and food insecurity levels to poor rural
infrastructure, droughts, disease and conflicts. The impetus for regional
integration in COMESA began in December 1994 when it was created to
replace the former Preferential Trade Area (PTA). Though COMESA replaced
the PTA in 1994, the PTA framework for tariff liberalization operated until
December 2000.

Under this framework, preferential treatment in the form of reduced tariffs on

intra-regional trade of regionally originating goods applied to a group of
selected commodities common to all Members. The common list of products
eligible for preferential treatment was classified into six groups. Agricultural
products were amongst the first three groups: food (group I: 30 percent tariff
reduction), raw materials (group II: 50 percent) and other agriculture (group
IIIa: 60 percent tariff reduction). It was envisaged that full market liberalization
would take place by the year 2000.

In 1994, when COMESA replaced the PTA, many of its ongoing trade
facilitation programmes and activities were continued. However, given the

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slow pace in achieving a customs union, COMESA launched an FTA in 2000
with just 9 Members. To date, 13 of its Member States are part of the FTA and
this has expanded trade in the region and created significant opportunities in
all sectors. Examples include cotton yarn exports from Zambia to Mauritius,
replacing imports from Asia and the Far East; tea exports from Kenya to Egypt,
replacing imports from India and Sri Lanka; edible oil exports from Kenya to
Zambia; and sugar imports into Kenya from Malawi, Zambia, Sudan, Egypt,
Madagascar and Swaziland, displacing Brazilian and Argentinean sugar.

With regards to women, COMESA is facilitating a programme for the

promotion of female farmers in agro-processing and marketing developing
along with training on the COMESA trade regime. Most seriously, the region
has a very high rate of HIV/AIDS with estimated income loss of about 2.6
percent of the GDP annually to the disease.

The agricultural sector has been the hardest hit from the disease resulting in
labour and the diversion of resources away from agriculture to meet the
regions health needs. The high mobility in agricultural trade particularly along
the region’s transport corridors has accelerated the spread of the disease and
this has negatively affected cross border trading activities resulting in major
trade losses. In response to this epidemic COMESA and its development
partners plan to initiate a programme dubbed Building Corridors of Hope
aimed at behavioural change communication activities.

Summary

COMESA has made fairly good progress towards liberalising trade within its
borders but difficulties remain. Detailed rules have been drawn up covering
most of the areas relevant to establishing a common market in agricultural
products and the plans for a common agricultural policy indicate an awareness
of the importance of the sector to the region’s economies. One issue that the
COMESA process highlights is that of the differing capacities possessed by

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States to undertake liberalisation and reform. The asymmetrical approach
adopted in COMESA provides flexibility to those countries with limited
capacity but undermines the normative nature of treaty obligations.

6.4 THE SOUTHERN AFRICAN DEVELOPMENT COMMUNITY (SADC)

Background

SADC’s origins date back to April 1980 when the Southern African
Development Coordination Conference (SADCC) was established following
the adoption of the Lusaka Declaration. The primary aim of the organisation
was not to create an integration arrangement but rather to reduce dependence
on South Africa. Cooperation, rather than the taking on of binding
commitments, was the strategy adopted by the new organization.

In 1992, one year after the adoption of the Abuja Treaty, SADCC was
transformed into the Southern African Development Community following
the adoption of the Declaration and Treaty of SADC at Windhoek,
Namibia140. This Treaty was later amended in August 2001. The SADC trade
agenda is set out in the Protocol on Trade, which was concluded in August
1996 and entered into force on 25 January 2000. Pursuant to the Protocol,
SADC’s aim is to establish a free trade area within eight years of the Protocol’s
entry into force, that is to say, by 2008.

The SADC Trade Protocol was notified to the WTO under Article XXIV in
2004142, and is currently being examined pursuant to the newly established
transparency mechanism. SADC Member States are also currently engaged in
EPA negotiations with the European Union under two configurations: the ESA
– EU EPA configuration and the Southern Africa – EU EPA configuration.
South Africa recently joined the Southern Africa negotiations after having been
an observer in the early stages.

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Underpinning principles

The legal principles underlying SADC that are of relevance to this study are to
be found in both the Treaty itself and the Protocol on Trade. The SADC Treaty
provides, inter alia, that in order to achieve its objectives, SADC will
‘harmonise political and socio-economic policies and plans of Member States’
and ‘develop policies aimed at the progressive elimination of obstacles to the
free movement of capital and labour, goods and services, and of the people of
the Region generally, among Member States’.

Among the objectives of SADC under the Protocol on Trade are the
liberalisation of intra-regional trade in goods and services on the basis of fair,
mutual, equitable and beneficial trade arrangements and the establishment of
a free trade area in the SADC region.

Harmonisation of laws

One of the objectives set out in the SADC Treaty is the harmonisation of
political and socio-economic policies and plans of Member States. ‘Member
States undertake to take all necessary steps to ensure the uniform application
of the Treaty’. The Protocol on Trade provides for the harmonisation of
customs tariff nomenclatures and statistical nomenclatures in conformity with
the Harmonised System, the harmonisation of valuation laws and practice, as
well as the simplification and harmonisation of customs procedures. In
simplifying their customs procedures, Members are to act in accordance with
internationally accepted standards, recommendations and guidelines.

Trade liberalisation programme

The SADC tariff reduction programme is set out in the SADC Trade Protocol
which, though signed in 1996, only entered into force in 2000. This provides
that the reduction of tariffs and elimination of other barriers to trade is to be
accomplished on a principle of asymmetry within a period of eight years from
the Protocol’s entry into force. The programme provides for the five SACU
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countries to liberalise trade at a faster rate than the other SADC Members. The
programme also provides for the categorisation of the goods to be traded on a
tariff free basis, with category A goods to be liberalised immediately, category
B goods to be subject to gradual liberalisation and category C consisting of
sensitive goods to be liberalised last. Thus by 2008, SADC is due to have
established a free trade area.

Non-tariff barriers

Quantitative restrictions are defined in Article 1 of the SADC Trade Protocol as

any ‘prohibitions or restrictions on imports into, or exports from a Member
State whether made through quotas, import licences, foreign exchange
allocation practices or other measures restricting imports or exports. Articles 7
and 8 of the Protocol deals with quantitative import and export restrictions
respectively. Under Article 7, Members are not to apply any new quotas and
are to phase out any existing restrictions on imports of goods originating
within the Community. Article 8 on the other hand forbids the application of
‘any quantitative restrictions on exports to any other Member State, except
where otherwise provided for in the Protocol.’

Persons intending to engage in the operations of transit traffic must be licensed

for that purpose by the competent authorities of the member state in whose
territory he is normally resident or established. The competent authority is to
then inform all other Member States of all persons licensed.

Most-favoured nation principle

The SADC Protocol on Trade contains an MFN clause that obliges Member
States to accord MFN Treatment to one another. However, Members are
permitted to grant or maintain preferential trade arrangements with third
countries, provided such arrangements do not impede the objectives of the

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Protocol and any advantages granted to third countries are extended to other
Member States.16

Rules of origin

SADC originating goods eligible for preferential treatment are to be

determined by reference to the Annex concerning the Rules of Origin.
According to these Rules, the general requirement for goods to be accepted as
originating is that they must have been consigned directly from a Member
State to a consignee in another Member State and have been wholly produced
in any Member State or have been obtained in any Member State incorporating
materials not wholly produced there ‘provided that such materials have
undergone sufficient working or processing in any Member State.

Sanitary and phytosanitary measures

Under Article 9 of the SADC Trade Protocol, Member States are permitted to
adopt or enforce any measures ‘necessary to protect human, animal or plant
life or health’ provided that such measures are not applied in a manner
constituting a means of arbitrary or unjustifiable discrimination between
Members or a disguised restriction on trade.

Article 16 of the SADC Protocol on Trade provides that:

Member States are to base their sanitary and phytosanitary measures

on international standards, guidelines and recommendations, in order
to harmonise sanitary and phytosanitary measures for agricultural and
livestock production.

It further provides that:

Member States are to enter, upon request, into consultation with the
aim of achieving agreements on the recognition of the equivalence of

16
Annex on Rules of Origin, rule 2(1)

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 specific sanitary and phytosanitary measures, in accordance with the
WTO Agreement on the Application of Sanitary and Phytosanitary
Measures.

Safeguard provisions

Article 20 of the Protocol on Trade contains provisions regarding the

application of safeguard measures. It provides, inter alia, that safeguard
measures can only be applied to a product if it is determined that the
product is being imported into the territory in such quantities as to cause
or threaten to cause serious injury to the domestic industry that produces
like or directly competitive products.

The maximum period for applying safeguards measures is determined by

reference to the WTO Agreement on Safeguards, that is to say, a period of
four years with a total period of application not exceeding eight years.
Under Article 21 of the Protocol on Trade, Members may suspend certain
of their obligations under the Protocol in respect of like goods imported
from other Members in order to promote infant industries. However, this
step can only be taken following an application to the CMT, which may
impose terms and conditions for granting its authorisation.

Trade remedies

The Protocol on Trade defines dumping as meaning ‘in accordance with

the provisions of Article VI of GATT (1994), the introduction of a product
into the commerce of another country at less than its normal value, if the
price of the product exported from one country to another is less than the
comparable price in the ordinary course of trade, for the like product
when destined for consumption in the exporting country’.

Article 18 of the Protocol on Trade permits Member States to apply anti-

dumping measures provided that they are in conformity with WTO
provisions. The relevant WTO provisions are those found in the
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Agreement on the Implementation of Article VI of the General Agreement on
Tariffs and Trade 1994. Article 19 of the Protocol on Trade is the relevant
article concerning subsidies and countervailing measures. It prohibits
Member States from granting subsidies which distort or threaten to
distort competition in the region. A Member State can levy countervailing
duties on the product of another state for the purposes of offsetting the
effects of subsidies provided that these are in conformity with WTO
provisions.

Intellectual property rights

Article 24 of the Protocol on Trade provides that ‘Member States are to adopt
their policies and implement measures within the Community for the
protection of Intellectual Property Rights, in accordance with the WTO
Agreement on Trade-Related Aspects of Intellectual Property Rights.’
There are therefore no special intra-bloc rules regarding IP and Member
States have undertaken to comply with, and harmonise to, multilateral
standards.

Status of regional integration and food trade in SADC

Unlike other RECs, whose RIAs are based on the classic Vinerian
approach, with primary focus being the benefits of regional integration to
derive almost exclusively from a trade angle, SADC, in contrast,
stemming from the economic independence desires and political security
needs of the Front-Line States, has had a development approach to
regional integration. For it, the strongest argument for regionalization has
been hinging on wider issues, with structural weaknesses being regarded
as the critical constraint to intra-regional trade.

Thus, it has followed largely a sectoral cooperation approach to regional

integration. The SADC Trade Protocol was signed in August 1996 but
only came into effect on September 1, 2000. The SADC Regional Indicative
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Strategic Development Plan (RISDP) and the Strategic Indicative Plan for
the Organ (SIPO) provide the vehicle for the SADC Regional Integration
Strategy and Programme. The RISDP specifically calls for the
establishment of the SADC Free Trade Area (FTA) by 2008; a SADC
Customs Union by 2010; a SADC Common Market by 2015; a SADC
Monetary Union by 2016; and a Single Currency by 2018.

The overall objective of the SADC Trade Protocol is to have 85 percent of

all intra-SADC trade at zero tariffs by 2008 and the remaining 15 percent
to be liberalized by 2012, effectively establishing a free trade area (FTA).
The main instrument of trade liberalization is therefore the elimination of
customs tariffs and non-tariff measures on substantial intra-SADC goods
trade. The tariff reduction scheme is being carried out in four categories.

▪ Category A includes commodities that already attracted low or

zero tariffs which should immediately be reduced to zero duty at
the start of the implementation period, for example by 2000.

▪ Category B relates to goods that constitute significant sources of

customs revenue for Member States and whose tariffs are to be
removed over 8 years, by 2008. Categories A and B should
account for 85 percent of intra-SADC trade so that by 2008166.
This required that should be duty free.

▪ Category C deals with sensitive products (imports sensitive to

domestic industrial and agricultural activities) whose tariffs are
to be eliminated between 2008 and 2012. Category C should be
limited to a maximum of 15 percent of each Member’s intra-
SADC merchandise trade.

▪ Category E are goods that are be exempted from preferential

treatment such as firearms and munitions.

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The SADC region produces all the strategic products and like the COMESA
with which it overlaps, maize is the most important food crop as it is the key
staple for the bulk of the SADC population. Agricultural and food production
are mainly driven by South Africa, Zimbabwe, Tanzania, Madagascar, Congo,
DR (sugar, cassava, maize, vegetables, sweet potatoes, sorghum, rice, cattle);
Mozambique (cassava, sorghum, rice); and Angola (cassava, sweet potatoes).
Mauritius which is outside the mainland is entirely dominated by sugar
production.

Average levels of food dependency for maize, rice and wheat for this region is
over 60 percent. Commercial imports of cereals were around 7 million metric
tonnes during 2003-05, with food aid accounting for about 12 percent of its
total cereal imports. In this region, food aid in maize, rice and wheat all show
a slight decline. Non-cereal food aid is has also declined and this is due largely
by the decline in food aid of milk and vegetable oils. During 2003-05, food aid
in pulses/ legumes account for 10 percent of total pulses imports.

Summary

The SADC trade regime is designed to conform to WTO requirements and its
notification to the WTO under Article XXIV is an indication that its members
are ready to undergo close scrutiny as to their trade liberalisation plans. One
of the main outstanding issues to be resolved regarding SADC is that of
overlapping membership with COMESA and the EAC. Though COMESA and
SADC established a joint Task Force in 2001 to coordinate the programmes and
activities of the two organisations, there is a very real danger that if the two
blocs do not rationalise their membership, then states belong to both blocs
could be faced with conflicting obligations.

6.5 THE ECONOMIC COMMUNITY OF WEST AFRICAN STATES (ECOWAS)

Background ECOWAS is a REC composed of 16 West African countries. Of
these 16, eight francophone countries are Member States of UEMOA, while the
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other eight, who are predominantly Anglophone, are not. This configuration
means that within ECOWAS, there already exists a core group of countries that
has engaged in accelerated economic integration to the extent of forming a
monetary union. ECOWAS was originally established in 1975 in order to
promote cooperation and integration in West Africa. On 24 July 1993, its
establishment Treaty was revised in order to take into account the provisions
of the Abuja Treaty and the changed economic landscape globally. With regard
to EPA negotiations, the West Africa – EU EPA configuration is made up of all
16 ECOWAS countries. This is likely to expedite the negotiations and ensure a
coherent outcome because, unlike in COMESA, ECCAS and SADC, the issue
of a country negotiating under one configuration while being a member of
another REC does not arise.

Underpinning principles

Among the aims and objectives of the Member States of ECOWAS are
promoting co-operation and integration, and maintaining and enhancing
economic stability. In pursuing these objectives, Members affirm their
adherence to a number of principles including inter-state co-operation,
harmonisation of policies, integration of programmes and recognition and
observance of the rules and principles of the Community. Regarding the wider
continental integration scheme, Members undertake to facilitate the co-
ordination and harmonisation of the policies and programmes of the
Community with those of the AEC. The ECOWAS Treaty also permits the
Community to enter into co-operation agreements with other regional
Communities in the context of achieving its regional objectives.

Harmonisation of laws

Provisions regarding the harmonisation of laws and policies are spread over a
number of sections in the ECOWAS Treaty. These include Articles 3 and 4
which set out the Aims and Objectives and Fundamental Principles of the
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Member States, respectively. Article 5 wherein Member States undertake to
create favourable conditions for the attainment of the objectives of the
Community and to take all necessary measures to ensure the required
enactment of legislation for the implementation of Treaty provisions is also
relevant. With regard to agriculture, Article 25 specifically provides that
Members States shall co-operate in the harmonisation of food security policies
paying particular attention to the conclusion of agreements on food security at
the regional level.

Trade liberalisation programme

In order to achieve the aim of establishing a Common Market, Article 3(2) of the
ECOWAS Treaty provides that Members are to abolish, by stages, customs
duties levied on imports and exports among Members. This obligation is
further elaborated in Article 35 of the Treaty, which contains an obligation on
the part of the Members to progressively establish in the course of 10 years
from 1 January, 1990, a customs union among the Members. Article 36 then
provides for the reduction and ultimate elimination of customs duties and
other charges of equivalent effect on goods eligible for Community tariff
treatment. With regard to external trade, Article 37 provides for the gradual
establishment of a common external tariff on all goods imported into the
Community from third countries.

Most-favoured-nation principle

The MFN principle is incorporated into the Community’s legal framework by

Article 43 of the ECOWAS Treaty which provides, inter alia, that ‘Member States
shall accord to one another in relation to trade between them the most
favoured nation treatment. In no case shall tariffs granted to a third country by
a Member State be more favourable than that applicable under the Treaty.

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Trade in agriculture

Chapter IV of the ECOWAS Treaty addresses the issue of cooperation in food

and agriculture. As mentioned above, Article 25(2)(f) provides that Members
are to co-operate in harmonising food security policies paying particular
attention to the conclusion of agreements at a regional level on food security.
Article 25 further elaborates on measures that Members are to take in
developing agriculture, forestry, livestock and fishery. Sub-article 1 sets out
the aims of cooperation in these areas, whereas in sub-article 2, the specific
fields within which cooperation is to occur are enumerated. One of these fields
is ‘the adoption of a common agricultural policy’. Though phrased using
mandatory language – ‘shall’ – it should be noted that the obligation in the
Article is only to co-operate, a word capable of elastic interpretation.

Rules of origin

With regard to the goods that are eligible for preferential treatment, Article 38
provides, inter alia, that ‘goods shall be accepted as eligible for Community
tariff treatment if they have been consigned to the territory of the importing
Member States from the territory of another Member State and originate from
the Community.’ The Article goes on to provide that the rules governing
products originating from the Community shall be contained in the relevant
Protocols and Decisions of the Community.

Pursuant to this provision, the ‘Protocol Relating to the Definition of the

Concept of Products Originating from Member States of the Economic
Community of West African States’ was adopted in May 2002. According to
the Protocol, goods are accepted as originating in Member States if they have
been wholly produced in the Community, or have been produced in a manner
such that material of foreign origin does not exceed 60 percent of the total cost
(CIF) of material used, or 60 percent of the whole raw material used in the
production of the goods is of Community origin, or the goods have received
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in the process of production a value added of at least 35 percent of the ex-
factory price before tax of the finished product.

Trade remedies

Article 42 of the ECOWAS Treaty defines and prohibits the practice of dumping
within the Community. It defines dumping as meaning ‘the transfer of goods
originating in a Member State to another Member State for sale:

a. at a price lower than the comparable price charged for similar goods in
the Member States where such goods originate (due allowance being
made for the differences in the conditions of sale or in taxation or for
any other factors affecting the comparability of prices); and

b. under circumstances likely to prejudice the production of similar goods

in that Member State

Members, however, are not permitted to apply anti-dumping duties on their

own initiative in the event of alleged dumping but are to appeal to the Council
‘to resolve the matter’ and it is the Council which shall ‘take appropriate
measures to determine the cause of the dumping’. The Article does not state
what measures the Council is to take once it has determined what the causes
of the dumping are. This indicates reluctance among Members to risk adverse
measures being taken against them in the event that they engage in the practice
of dumping. It is worth noting that the Treaty does not contain any provision
relating to the issue of subsidies and the application of countervailing duties
to offset them.

Transport

Member States have an overarching obligation to ensure the removal of

obstacles to the free movement of persons, goods, services and capital. This
obligation, with regard to transport and infrastructure in general is elaborated
in Article 32 of the ECOWAS Treaty. This Article provides, inter alia, that
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Member States undertake to ‘develop an extensive network of all-weather
highways within the Community, priority being given to the inter-State
highways’, ‘formulate plans for the improvement and integration of railway
and road networks in the region’ and ‘endeavour to standardise equipment
used in transport and communications and establish common facilities for
production, maintenance and repair.’ With regard to transit traffic, Article 45(2)
provides that each Member State is to grant full and unrestricted freedom of
transit through its territory for goods proceeding to or from a third country in
accordance with international regulations and the ECOWAS Convention
relating to Inter-State Road Transit of Goods.

Intellectual property rights

The issue of intellectual property rights is not directly addressed in the

ECOWAS Treaty. However, action in this area could be undertaken pursuant
to the provisions of Article 67 where Member States undertake to cooperate
with each other in harmonising policies in areas not specifically mentioned in
the Treaty ‘for the efficient functioning and development of the Community’.

Status of regional integration and food trade in ECOWAS

Within the ECOWAS, two groups of countries could be distinguished in terms

of their regional integration and trade liberalization efforts. The first group is
the French speaking countries making up the WAEMU17 and the other is the
predominantly English speaking non-WAEMU countries138. Unlike the non-
WAEMU countries, the eight Members of WAEMU belong to the common
Franc CFA monetary zone with a very high degree of convergence of
integration programmes with CEMAC in Central Africa (ECCAS). The level of
convergence between these two RECs (WAEMU and CEMAC) can be
attributed the establishment common monetary zone preceding earlier levels

17 Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, Togo
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of economic integration: free trade area, customs union and common market.
The WAEMU adopted a CET in 1998 and revised it 2000.

The WAEMU CET comprises three elements:

1. the customs tariff in four categories as follows:

a. basic social goods based on a restricted list - 0 duty,

b. basic goods, raw materials, capital goods and specific inputs - 5

percent duty,

c. inputs and intermediate products - 10 percent duty, and (d)

finished consumer goods ready for consumption - 20 percent
duty;

2. a statistical tax of 1 percent; and

3. the WAEMU Community Solidarity Levy also of 1 percent. The levy is

a counter-measure to offset the potential loss of customs revenue
arising from the reduction of tariffs on intra-community trade. To be
exempt from customs duties and levies, imported products must be
accompanied by a certificate of origin, with the exception of
agricultural and livestock products as well as handicrafts. The origin of
a product is determined: by the Member states in the case of wholly-
produced products and products for which there has been a change in
tariff classification, or have been produced with foreign materials
comprising at most 60 percent the cost of the product; by the WAEMU
Commission in the case of products that have been produced using raw
materials with received a value-added of at least 30 percent.

For the non-WAEMU countries, trade liberalization is grounded in the

ECOWAS Trade Liberalization Scheme (TLS), which came into effect in
1990. The TLS calls for the formation of a free trade zone within ten years

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 involving the complete elimination of tariff and non-tariff barriers by the
end of the 1999. Under the scheme goods eligible for duty free status
consist of raw materials, traditional handcrafts and industrial goods
identified in the TLS agreement.

Within the TLS framework, the establishment an ECOWAS free trade area
was supposed to be followed by the formation of an ECOWAS customs
union within two years, by 2002. However, the introduction of the CET did
not proceed as anticipated and was deferred to 2005 so that the common
external tariffs of ECOWAS and WAEMU could be harmonized.

A key feature of the WAEMU and ECOWAS customs union regime are
every clear and specific safeguards and trade remedy measures, some of
which are based on those used earlier by WAEMU. These measures which
are still not finalised will be made WTO compatible and will form part of
the ECOWAS customs union notification to the WTO. These measures are:

▪ The Decreasing Protection Tax (DPT)

▪ The Import Safeguard Tax (IST)

▪ The ECOWAS Countervailing Duty (CVD)

Summary

Under Article 54 of the ECOWAS Treaty, Members committed themselves to

achieve the status of an economic union within a period of 15 years from the
commencement of the regional trade liberalisation scheme. Article 55 provides
that economic and monetary union was to be completed within five years
following the creation of the customs union. ECOWAS Members have made
good progress in their efforts to integrate their economies and there is an
awareness of the measures that need to be undertaken to ensure the success of
the REC.

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6.6 THE COMMUNITY OF SAHEL-SAHARAN STATES (CEN-SAD)
CEN-SAD is the youngest of the RECs, having been established in February
1998 with the adoption of the Treaty establishing the Community of Sahel-
Saharan States. It was subsequently recognised as a REC at the 36th summit of
the OAU held in Lomé in July 2000. Unlike the other RECs, its geographical
spread does not correspond with any of the five geographical regions specified
in the Abuja Treaty. As a result, CEN-SAD’s membership consists of countries
that are already members of other RECs.

The founding Members of CEN-SAD were Burkina Faso, Chad, Libya, Mali,
Niger and Sudan. One year later, the Central African Republic and Eritrea
joined the organisation and in 2000, Djibouti, Gambia and Senegal also acceded
to the Treaty. Since then, Benin, Cote d’Ivoire, Egypt, Ghana, Guinea Bissau,
Liberia, Morocco, Nigeria, Sierra Leone, Somalia, Togo and Tunisia have
joined the bloc, bringing the total membership to 23 States. Though this rapid
expansion has the effect of enlarging the market covered by CEN-SAD, it also
raises serious issues regarding coherence of its policies with those of the RECs
with which it overlaps.

Among CEN-SAD’s objectives are the elimination of obstacles to the free

movement of goods, merchandise and services and the improvement of land,
air and sea transportation. As a matter of principle, the aims of CEN-SAD are
therefore compatible with the creation of a common market in agricultural
products. However, the greatest challenge facing CEN-SAD is harmonising
and coordinating its own trade liberalisation programme and policies with
those that are already being implemented by the various RECS to which its
members are party. For the purposes of this study, the nascent CENSAD trade
liberalisation programme will be discounted in favour of analysing those of
the other RECs to which its members are party and which have already been
in operation for a longer period of time.

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6.7 THE ECONOMIC COMMUNITY OF CENTRAL AFRICAN STATES (ECCAS)
Background

The Economic Community of Central African States is another of the RECs

recognised by the African Union as a building bloc of the AEC. The
organisation was established following the adoption of the Treaty Establishing
the Economic Community of Central African States in 1983. The underlying
goal behind the organisation’s creation was the expansion of UDEAC to
incorporate more Central African States.

ECCAS is composed of eleven countries: Angola, Burundi, Cameroon, Central

African Republic, Chad, Congo, DR Congo, Gabon, Equatorial Guinea,
Rwanda and Sao Tomé and Principe. Of these eleven countries, six (Cameroon,
Central African Republic, Chad, Congo, Gabon, and Guinea Equatorial) are
members of CEMAC (formerly UDEAC). Recent reports indicate that Rwanda
has decided to pull out of ECCAS, presumably to focus its energies on
COMESA and its accession to the EAC.

For a number of years following its formation, ECCAS was dormant due to
financial difficulties and conflict in the Great Lakes region. With regard to EPA
negotiations, the six CEMAC countries together with Sao Tomé and Principe
and (since 2005), the DRC have joined to negotiate together under the CEMAC
– EU EPA configuration.

Underpinning principles

The preamble to the ECCAS Treaty indicates that Member States are, inter alia,
convinced that cooperation fosters accelerated and harmonious economic
development and that they recognise that efforts at sub-regional cooperation
should not conflict with similar efforts being made at a wider level. The aims
of ECCAS as set out in Article 4 include promoting and strengthening
harmonious cooperation in fields including transport and communications,
trade and customs. These aims are further specified as:
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 a. the elimination between Member States of customs duties and any
other charges having an equivalent effect levied on imports and
exports;

b. the abolition between Member States of quantitative restrictions and

other trade barriers;

c. the establishment and maintenance of an external common customs

tariff;

d. the establishment of a trade policy vis-à-vis third States;

e. the progressive elimination between Member States of obstacles to the

free movement of persons, goods, services and capital and to the right
of establishment;

f. the harmonization of national policies in order to promote Community

activities, particularly in industry, transport and communications,
energy, agriculture, natural resources, trade, currency and finance,
human resources, tourism, education, culture, science and technology.

Harmonisation of laws

Article 5 of the ECCAS Treaty obliges Members to ‘direct their endeavours with
a view to creating favourable conditions for the development of the
Community’ and to refrain from any unilateral actions likely to hinder such
achievement. On the issue of customs administration, the Council is to propose
to the Conference ‘the adoption of a common customs and statistical
nomenclature for all Member States, while Article 37 obliges Members to ‘take
all necessary measures to harmonize and standardize their customs
regulations and procedures’ in accordance with Annex V. With regard to
transport, Article 47(1)(c) obliges Members to progressively harmonize their
transport and communications laws and regulations.

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Non-tariff barriers

Article 27 of the ECCAS Treaty obliges Members to eliminate quotas as part of

the customs union. This requirement is reiterated in Article 33, which obliges
Member States to relax and ultimately remove quota restrictions as a non-tariff
barrier to intra-Community trade. Though the Treaty does not specifically
provide for obligations with regard to licensing requirements, Article 33
requires the relaxation and ultimate removal of ‘other restrictions and
prohibitions in force’ on goods being transferred from one Member State to
another. This provision would therefore appear to encompass the elimination
of any licensing requirements for engaging in trade.

Most-favoured-nation principle

Article 35 of the ECCAS Treaty provides, inter alia, that: Member States shall
accord to one another in relation to intra-Community trade the most-favoured-
nation treatment.

In no case shall tariff concessions granted to a third country in

pursuance of an agreement with a Member State be more favourable
than those applicable in pursuance of this Treaty.

The Article further provides that ‘No Member State may conclude with any
third country an agreement whereby the latter would grant such Member
State tariff concessions not granted to the other Member States.’ This would
appear to prohibit any Member State being a member of any other REC in
which the others were not participating. However, it is clear that this
provision was never operationalized in view of the fact that it would have
required countries such as Burundi and Rwanda not to continue with their
memberships of COMESA when it was born out of the Preferential Trade
Area, which they did not do.

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Transport

Article 36 of the ECCAS Treaty provides that Members are to grant freedom
of transit through their territories to goods proceeding to or coming from
another Member State.

Article 47 then sets out the measures to be taken in order ‘to achieve a
harmonious and integrated development of the sub-regional transport and
communications network’. These include:

a. [promoting] the integration of transport and communications

infrastructures;

b. [coordinating] the various modes of transport in order to increase

their efficiency;

c. progressively [harmonizing] their transport and communications

laws and regulations.

Status of regional integration and food trade in ECCAS After a long period of
inactivity, the ECCAS is now regarded as one of the pillars of the African
Union’s AEC having signed the protocol on relations between the AEC and the
RECs in October 1999. The ECCAS Member have adopted a scheme for
phasing out tariffs on intra-community trade, known as the ECCAS
Preferential Tariff, together with rules of origin and approval procedures at
the community level, which were supposed to enter into force on 1 July 2004.

The tariff reduction timetable envisaged is as follows: for traditional handicraft

and local products (other than mining products) a 100 percent reduction from
1 July 2004; in the case of mining products and manufactured products with
originating status, 50 percent from 1 July 2004, 70 percent as of January 2005,
90 percent as of January 2006, and 100 percent as of January 2007. The free
trade area is due to be established no later than 31 December 2007, in
accordance with the timetable of the EPA with the EU. However, by July 2007,
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the tariff reduction process leading to the establishment of a free trade area
had not yet begun.

Beyond the formation of a free trade area and a customs union by 1998,
CEMAC has taken some initiatives concerning the next phase formation of a
common market—notably, the free movement of persons, the free movement
of capital, and the harmonization and coordination of macroeconomic and
sector policies. As an instrument of the free movement of people within the
community, the CEMAC Passport and the Red Card for motor vehicle were
adopted in 2000. The responsibility for issuing and administering CEMAC
Passports rests with individual member states. The Red Card motor vehicle
insurance was adopted in compliance with the 1996 agreement of introducing
an international insurance card for protection against civil liabilities within
CEMAC.

Summary

One unusual feature of ECCAS is the provision in the MFN Article that
Member States are not to enter into any agreements with third parties if those
third parties do not extend the preferences to the other ECCAS Members.
Though admirable in intent, in the sense that its aim was to ensure that the
REC functioned as one unit, the level of compliance with the provision has
been low and this has partly led to the current situation of overlapping RECs.
The strength of the REC lies in its incorporation of the CEMAC countries who
are able to form a core around which liberalisation measures can proceed.

6.8 THE ARAB MAGHREB UNION (AMU)

Background

The AMU is a REC consisting of five countries: Algeria, Libya, Mauritania,

Morocco and Tunisia. It was established in 1989 that is, two years before the
adoption of the Abuja Treaty, following the signing of the Treaty of Marrakech.

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At the time of its creation, it was seen as being the first step towards the
eventual unity of all Arab states. The operations of the AMU have been at a
virtual standstill since the last meeting of its highest organ, the Presidential
Council, in 1994.

In light of this development, the provisions of the Constitutive Treaty warrant

no more than a passing mention. Due to the fact that Algeria belongs to no
other REC (unlike its four other AMU partners) it will be necessary to devise a
means of utilising it as a mechanism through which Algeria can participate in
the Common market, especially if the Common market is to operate through
the RECs in its early stages.

Treaty provisions

The Treaty of Marrakech is a very short instrument, comprising just 19 Articles,

most of which are concerned with the establishment of the AMU’s organs. The
organisation’s objectives, as set out in Article 2, include realising the progress
and prosperity of the Member States and working progressively to realise the
free movement of persons, services, goods and capital.18

These objectives are further elaborated in Article 3 which provides that the
aims of the organisation include the achievement of industrial, agricultural,
commercial and social development of the Member States. The programme to
be followed in achieving these objectives was not set out implying that these
were seen as details to be worked out at a later stage.

Status of regional integration and food trade in the AMU

In July 1990, the AMU adopted a development strategy, accompanied by the

following timetable:

18
AMU Treaty, Article 2

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 i. creation of an FTZ by 1992 involving the elimination of administrative
barriers and the introduction of preferential tariffs;

ii. establishment of a Customs Union with a common external tariff by

December 1995;

iii. setting up of a Maghreb common market by removing restrictions to

the free movement of factors, at the latest by the year 2000; and

iv. creation of an economic union by the harmonization of economic

policies.

Very little progress has been made in these directions. The AMU has adopted
several agreements: key amongst them - the convention on trade in
agricultural products, which entered into force in July 1993, with the intention
of enhancing food security for the population of the Maghreb has not been
implemented; and the trade and tariffs agreement (March 2001) which
recommended free movement of originating products from the Maghreb and
the application of a single compensatory rate of 17.5 percent on import, was
only applied for a short period of time. Free movement of persons is effective
between three countries - Libya, Morocco and Tunisia.

Non-tariff barriers amongst the AMU countries consist of:

i. technical requirements regarding health and phytosanitary

regulations;

ii. very stringent customs procedures relating to rules of origin, import

licenses, quotas, etc. Furthermore, the absence of proper road
infrastructure and regular sea transport to/from the 38 trading ports in
the Maghreb are also a hindrance to the growth of intra-Maghreb trade.

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Summary

The AMU Member States have undertaken no more than the most general and
unenforceable obligations. No specific steps were spelt out regarding the
strategy to be employed in liberalising intra-regional trade and, it cannot be
considered as having taken any meaningful steps to liberalise intra-regional
trade. Membership of the AMU should not, as a result, prevent its members
from active participation in the liberalisation programmes of any other blocs
to which its members may belong. This presents a problem with regard to the
position of Algeria, which is not a member of any other REC and, in the event
that it does not join any other REC, it would need to decide how it would go
about liberalising agricultural trade. However, the existence of several regional
projects centred on the interconnection of road and rail networks gives hope
to enhanced trade and integration within the AMU countries.

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