WORLD TRADE ORGANIZATION (WTO)

An Overview
The World Trade Organization (WTO) is the only global international organization
dealing with the rules of trade between members nations. There are the WTO
agreements, negotiated and signed by many world’s trading nations. These agreements
are ratified in their parliaments. The chief purpose and objective is to assist the
producers of goods and services, exporters, and importers conduct their business
besides helping them under the WTO regime.

In other words, the WTO deals with the rules of trade between members nations at a
global or close to global level. The organization aim is to boost and liberalizing trade.
It is global forum for member’s governments to negotiate trade related agreements. It
also provides a place for negotiating agreements and aimed to reduce obstacles to
international trade. It also provides a level playing field for all those countries providing
and contributing economic growth and development. It also provides a legal and
institutional framework for monitoring and the implementation of these agreements
together with settling trade disputes among member’s nations. It gives trade rules and
operates through these rules. Further, the WTO is a place where member
governments apply and try to sort out the trade disputes between them.

The WTO came into existence from the 1986–94 negotiations known as the Uruguay
Round and earlier negotiations under the General Agreement on Tariffs and Trade
(GATT). The WTO is currently the host to new negotiations, under the “Doha
Development Agenda” launched in 2001.

These WTO trade agreements comprising 16 different multilateral agreements (to which
all WTO members are parties) and two different plurilateral agreements (to which
only some WTO members are parties

PRIMARY FUNCTION
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The World Trade Organization is the only international organization whose primary
function is to open trade for the benefit of all.

PROFILE

The WTO was established on First January 1995. It was created under the Uruguay
round negotiations during the years 1986 to 1994. The head office of WTO is in
Geneva Switzerland.

There are 162 countries which have memberships of WTO as of November 30, 2015.
Of 162 countries there are 117 developing countries. The annual budget amounts to $
197 million Swiss francs. The secretarial staff strength is 640. The head of WTO is
Director General namely Mr. Roberto Azevedo. The official languages are English,
French and Spanish.

OTHER FUNCTIONS

The WTO performs other functions as under:

 Administrating WTO Trade Agreements

 Forum for Trade Negotiation
 Handling Trade Disputes
 Monitoring National Trade Policies
 Technical Assistance and Training for Developing Countries
 Co-operation with other International Organizations

DECISIONS

Decisions in the WTO are generally taken by consensus of the entire membership.
The highest institutional body is the Ministerial Conference, which meets every two
years. A General Council conducts the organization's business in the intervals between
Ministerial Conferences. Both of these bodies comprise all members. There are
Specialized subsidiary bodies namely Councils, Committees and Sub-committees,
comprising all members, administer and monitor the implementation by members of the
various WTO agreements.

GATT

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On 1 January 1995, the WTO replaced GATT, which was in existence since 1947 on
January 1, 1995 means the organization overseeing the multilateral trading system. The
governments that signed GATT were known as “GATT contracting parties”. Upon
signing the new WTO agreements (which include the updated GATT, known as GATT
1994), they became known as “WTO members”. Presently there are 128 GATT
signatories’ countries at the end of 1994.

Principles of WTO

Most Favoured Nation Treatment (MFN)

The most important and fundamental principle of WTO is non-discriminatory treatment.

Any advantage, favour, privilege or immunity granted by one WTO member to another
(lower customs duty) has to be granted immediately and unconditionally to all other
members.

In goods trade MFN treatment applies to customs duties, other border duties and
charges, rules and regulations relating to imports and exports, methods of levying
customs duties and international transfers of payments for imports or exports. Customs
unions and free trade agreements are negotiated under a special exception to the
MFN Principles. Such favourable treatments need not be extended to all other WTO
members.

National Treatment

The principle of national treatment implies that imported goods will be given treatment
that is no less favourable than that given to domestic goods. This principle of giving
same treatment to others as to one’s own national is unqualified in case of goods.

Stability and predictability through binding

The stability and predictability of trading conditions is another basic principle of the
WTO. Stable and predictable conditions of access to markets promote confidence
because investors and traders can plan their investments secure in the knowledge that
market access conditions will not change for the worse.

This is achieved through the bindings of tariff. Tariffs on different products that are
reduced or agreed to in trade negotiations are bound. A country agrees that it will

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not levy tariffs at rates higher than those agreed to. As regards industrial products
developed countries have bound tariffs on practically all products, while developing
countries have bound them for more than 70 percent of their products. Each country
in its schedule of tariff concessions and commitments records bound rates of tariffs for
different products.

Transparency

WTO rules oblige member countries to ensure transparency in their foreign trade
regimes by requiring them to publish all laws, regulations, measures and administrative
decisions affecting trade. The laws have to be implemented in a manner that allows
importers, exporters, consumers and investors to be aware of them. Transparency is
also ensured by requiring member countries to submit periodic notification to the WTO
secretariat on different aspects of the trade regime.

Trade liberalization

One of the principles of the WTO is progressive liberalization of trade. This principle
is rooted in the belief that the removal or reduction of trade barriers results in an
expansion of international trade that is to the benefit of all countries.

Anti-Dumping

The Agreement on Anti-dumping elaborates the provisions of Article VI of GATT 1994.

The GATT provides the right to the contracting parties to apply anti-dumping measures
i.e. measures against imports of a product at an export price below its “normal
value”, if such dumped imports caused injury to a domestic industry in the territory of
the import contracting party.

Case Example

Recently The South Africa has imposed between14-77% anti-dumping duties on

Portland cement originating in or imported from Pakistan with effect from December 18,
2015.

The rate of duty imposed on Luck Cement Ltd is 14.29% followed by 77.15% on
Bestway Cement Ltd, 68.87% on DG Khan Cement Ltd, 63.53% on Attock Cement
Ltd and 62.69% on all other cement exporters excluding manufacturers.

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The International Trade Administration Commission (ITAC) further decided that these
duties would not be rebated unless a specific recommendation in this regard was
made to the minister in future.

The final decision determined that dumping of Pakistani cement causing material injury
to the South African industry and these duties would remain in place for a period of
5 years unless a review process takes place. Pakistan approached the WTO
challenging the South African anti-dumping duties but failed.

Dispute Settlement

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The WTO provides a forum and procedure for resolving trade disagreements or
complaints under the Dispute Settlement. The understanding of rules is vital for
enforcing the rules and for ensuring the smoothly trade flows.

A dispute generally arises when a member government believes another member

government is violating an agreement or a commitment that it has made in the WTO.
The authors of these agreements are the member governments themselves the
agreements are the outcome of negotiations among members. The ultimate
responsibility for settling disputes also lies with member governments, through the
Dispute Settlement Body.

Rules of Origin

The Rules of Origin determines where a product comes from which is no longer easy
when raw materials and parts across the globe are used as inputs in manufacturing
plants. The Rules of origin are important in implementing such trade policy instruments
as anti-dumping and countervailing duties, origin marking, and safeguard measures.

PROCEDURES

I. Application
II. Consultations

III. Conciliation and Mediation

IV. Establishment of Panel

V. Composition of Panel

VI. Terms of Reference

VII. Arbitration

Disputes by Agreement

A dispute arises when a member government believes another member government is

violating a WTO agreement. The complaining member will submit a “request for
consultations” identifying the agreements which are being violated. A dispute can be,
and often is, brought under more than one agreement.

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The Appellate Body

The permanent seven-member Appellate Body is set up by the Dispute Settlement Body
and broadly represents the range of WTO membership. 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 Dispute Settlement Body

It is made up of all member governments, usually represented by ambassadors or

equivalent. The current chair is Ambassador Harald NEPLE (Norway).

Case Example

Recently the United State of America (USA) accused China of tax discrimination
against foreign made aircraft and a complaint filed with the WTO. The USA launched
WTO dispute settlement process with a request for consultations with China “on its
measures exempting certain aircraft produced in China from value added taxes (VAT)
on imported aircraft. It has affected American-made aircraft and American parts
producers who provide components to foreign-made aircraft.

The China imposes a 17% value-added tax on imported aircraft, generally under 25
metric tonnes, while exempting from VAT comparable aircraft made in China. China
has not published its tax exemptions for domestically produced aircraft.

There are two breaches of WTO rules:

i. Prohibiting discriminatory taxation on the basis of national origin

ii. Transparency commitments

The USA has accused China over its hidden tax discriminatory policy. Transparency of
law and regulations impacting trade is a core WTO commitment that China must hold
just as other countries to do.

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 Trade and Payments

Pakistan’s overall external account balance posted a surplus of US $ 2.12 billion

during Jul-Apr 2014-15 against US $ 1.95 billion in the corresponding period last
year due to marked improvement in the current account and substantial foreign
exchange inflows. The current account deficit stood at US$1.4 billion during Jul-Apr
2014-15, which was 53.5 percent less than the deficit of US $ 2.9 billion in Jul-
Apr 2013-14. Services account deficit remained lower and stood at $1,632 million
during July-April 2014-15 as compared to $ 2,349 million during the same period
last year. Lower services account deficit was due to inflows of US $ 1.5 billion under
CSF. Lower freight expense (as shipping companies have apparently started passing
on the impact of cheaper oil) also provided some relief. Capital and Financial account
recorded a lower surplus of US $ 3.2 billion during Jul-Apr 2014- 15 compared to
US $ 5.3 billion during the same period last financial year. Worker’s remittances
recorded an increase of 16.1 percent during Jul-Apr 2014-15 and reached to $
14,969.7 million as against $ 12,897.9 million in the comparable period of last year.
Foreign exchange reserves improved substantially and reached US $ 17.8 billion by
end of April 2015, from US $ 14.2 billion at end June 2014. Pak Rupee recorded a
depreciation of 2.9 percent in Jul-April FY 15. The Exchange rate which at the end
of June 2014 was RS 98.80/$ went up by the end of April 2015 to Rs 101.75/$.
As a result of GSP Plus, Pakistan’s exports to EU have increased from US $ 6.21
billion during 2013 to US $ 7.54 billion in 2014. Thus as a result of GSP Plus,
Pakistan’s exports to EU registered an increase of US $ 1.32 billion in one year.
This represents an increase of 21 percent.

As per SBP data exports during the first ten month (July-April) of the current year
stood at US$ 20,176 million against US $ 20,834 million during corresponding period
last year. Imports during the first ten months (July-April) declined by 1.6 percent
compared with the same period last year and stood at $ 34,086 million against
$34,645 million same period last year. Based on SBP data, trade deficit posted
marginal increase of around 0.7 percent during Jul-Apr FY15 primarily due to decline
in Exports. Trade account balance recorded deficit of US $ 13,910 million during Jul-
April FY15 as against US $ 13,811 million corresponding period last year.

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EXPORT PERFORMANCE & OUTLOOK

Pakistan IT exports grows by 42% in Fiscal year (FY) 2015 and reaches at
$468m. IT exports accounts 8% of Pakistan’s total services exports. Since FY 2013
the industry’s exports have grown at a compounded annual growth rate of 29%.

The technology sector in the country comprises business that are engaged in design,
development and sale of software products as well as the provision of information
technology and IT enabled services and solutions.

Pakistan largest competitor in region is India which has a massive and well
developed IT sector.

TEXTILE

In the presence of the GSP plus status, Pakistan witnesses a 14% fall in the
exports from $5.969bn to $5.42bn during July-September which is a really a
worrisome matter. The similar trend was witnessed in the last two FYs when total
exports showed decline trend to $24.084bn in FY 2015 from $25.077bn in FY
2014 and $24.802bn in FY 2013.

The sector wise performance shows downward trend in all major areas. Apart from
foreign sales of textiles, exports of rice, sugar, cement, leather, footwear, handicrafts,
petroleum products and gem jewellery dropped.

Pakistan being the fourth largest cotton producing country in the world, Pakistan
enjoys two advantages:

i. Prompt availability for cotton yarn for local users

ii. Rising demand for cotton yarn from neighboring countries

But due to electricity problems and gas load shedding and shortages, the country
has not been able to take advantages due to high cost and price of local yarn.

AUTO INDUSTRY

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The auto industry despite having 40 years experience and history of assembling cars
has neither passion to enter the export market despite being massive domestic
business. The country spent more than $1bn on the import of motor vehicles.

CIRTUS FRUITS

Higher production and an improved marketing strategy amid better overseas marketing
products, higher export earnings of citrus fruits cannot be ruled out. The data shows
the per unit price of citrus fruits would be higher because of improvements made in
grading and packaging of the fruits particularly kinnow. Last year 4000 tonnes of the
fruits were exported to several European countries including UK, Canada, Sweden
and the Netherland. Similarly, more than 100,000 tonnes of the fruits were exported
to Russia. The fruits export is also being made to Malaysia, Mauritius, Bangladesh,
Srilanka, Gulf countries and China.

BASMATI

Basmati has been an exporting crop. 60% of the 2m tonnes of Bastami produced
has been sold abroad generating around $2bn for the national economy. The trade
of basmati has played an important role in the alleviation of poverty. However, slump
in basmati rice exports is having a damaging effect on Pakistan economy’s. The rice
exports have declined by 40% in the last 4 years from 1.1m tonnes in 2011 t
676.630 tonnes. The electricity shortages have increased the cost of production and
some rice mills are operating at only half of their capacity.

There is a need to expand the share of rice going to export market, which demands
a multi-pronged strategy ranging from reforms in the domestic market to much more
efficient marketing of exports abroad.

PHARMACEUTICAL

Pakistan pharmaceuticals exports presently stands at 200-240 million, compared with

India’s $20bn. There is a need to increase pharmaceuticals which poses a bog
challenge for the manufacturers. Pakistan face a big challenge in pharmaceuticals in
global markets. Weak regulation and lack of standards for setting up and producing
medicines in the country is the big challenge.

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The government must set minimum standards (quality) and standardized law
according to World Health Organization (WHO) guidelines.
At present, the domestic size of pharmaceutical industry is estimated to be $2.3bn
with the revenue of 574 domestic drug companies at $1.3bn and multinationals at
$950m.

SUGAR

Pakistan usually exports 600,000 tonnes of sugar every year. White sugar is
exported to East Africa and Central Asian countries. Afghanistan is the big importer
and imports around 560,000 tonnes of sugar every year from Pakistan. India is a
major competitor in the region with Pakistan in sugar.

CEMENT

The country’s overall cement exports declined by 26% to 2.56 million tonnes, from
3.45 million tonnes. Pakistan’s cement exports were already struggling due to intense
competition despite the Pakistani rupee was depreciated to boost exports but
competing countries also devalued their currencies. The share of sales to South
Africa was 20% of the export.

Iran is a major competitor in the region and is giving tough time to Pakistani
cement.

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CHALLANGES & BENEFITS

INTELLECTUAL PROPERTY LAWS (IPL)

Pakistan being a member of WTO has established special IP tribunals for IP

protection. We all know that IP laws need careful technical attention. Over the past
three decades, copyright has become a major commercial concern, which is not just
limited to poets, authors and artists but it covers software developers, filmmakers and
media houses. Big corporate trading entities are more interested in the protection of
various copyrights and want justice in case of infringements.

Patents have been an important issue in Pakistan and most of the patent claim
clashed with local interests. It is therefore, needed a sincere and thorough
understanding of the law, science and technology and local and international best
business practices are always needed. This has made the tribunals very important for
the IP community and for anybody who owns, trades in or uses intellectual property.

Pakistan being a member of WTO is required to provide protection to business

communities. The new law will effectively protect Intellectual Property Rights (IPRs)
of business community which are described as a limited form of proprietary rights.
Such protection will encourage foreign firms to invest in different sectors in Pakistan.

REGIONAL CO-OPERATION

Regional co-operation will invariably lead to a larger market size for products and
services. It will allow free trade movement and lower tariff rates. An increase in the
size of the market allows each form to produce more and thus lower its average
cost. The firms and economies of the region can benefit from such integration.

If integration occurs among the South Asian Association for Regional Co-operation
(SAARC), the economies of scale will dictate that each country produced its
specialized products in the region.

SKILLED WORKFORCE

The workforce employed or engaged in industry is largely semi-skilled and they work

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under unhygienic conditions that often fail to meet the WTO sanitary and
phytosanitary requirements. Pakistan in this regard has faced sanctions from the
European Union in fish exports recently.

The other important thing is that Pakistan preparedness to benefit from the GSP Plus
Status is not up to the mark. We need to focus seriously and use different options
to come out of this sluggishness.

NON-TEXTILE GOODS

Pakistan need to look beyond textiles goods particularly in food and engineering
goods. The export of fruits, vegetables, dry fruits and meat can boost our exports.
The export of pharmaceuticals is another area which may be used.

BALANCED TRADE POLICY

There is a need to devise a balance and workable strategic trade policy. The focus
of the trade policy should be on non-textile products which form 45% of the
country’s total exports. One of chief reason for dismal performance of Pakistan’s
export is serious constraint on the supply side. The traditional exports have reached
a saturation point and law of diminishing returns has set in. The trade policy need
to be clear and focus should be on bilateral, regional and multilateral levels. There
is also a need to increase production, efficiency and to access more markets. A
trade surplus and excess industrial capacity could guide the country’s market access
efforts.

AGRICULTURE EXPORT SUBSIDIES

The 162 members WTO has agreed to abolish all agricultural export subsidies of
developed countries immediately. Pakistan feels that this decision will go a long way
in providing a level-playing field for farmers and exporters of agriculture products
from developing countries.

As per decision, developed countries will have to abolish export subsidies for 5 years
and the developing nations in 8 years. Pakistan cam take advantage of this decision
and can now extend support to the agricultural sector by an extra 2 years. This will
also discipline the export credit and finance being provided to the corporate farmers
resulting in removal of many price distortion unfavourable to developing countries.

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Conclusion:

Pakistan is depending too much on imports. Pakistan need to adopt a balance trade
policy to address the issues of trade industries. There is also a need to acquaint
with the rules and regulations of WTO. A professional and well versed lawyers or
legal experts of international trade must be engaged in dispute relating to WTO.

The policy makers need to adopt prudent policies relating to trade and give
importance to non-textile sectors in export. Need to improve Law & order situation in
the country which is a big hindrance to bring foreign investors in Pakistan. IP laws
must be implemented in letter and spirit.

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