PRESENTATION ON MULTILATERAL AND PLURILATERAL TRADING SYSTEM

Prepared by: Rahul Sharma Sonali Gugliani

INTRODUCTION

A multilateral system is a trading system that facilitates the exchange of financial instruments between multiple parties. Multilateral trading facilities allows eligible contract participants to gather and transfer a variety of securities, especially instruments that may not have an official market. These facilities are often electronic systems controlled by approved market operators or larger investment banks. Traders will usually submit orders electronically, where a matching software engine is used to pair buyers with sellers. Multilateral trading facilities offer retail investors and investment firms an alternative venue to trading on formal exchanges. Additionally, MTFs have less restrictions surrounding the admittance of financial instruments for trading, allowing participants to exchange more exotic assets.

While the WTO is still young, the multilateral trading system that was originally set up under GATT is well over 50 years old. The system was developed through a series of trade negotiations, or rounds, held under GATT. The first rounds dealt mainly with tariff reductions but later negotiations included other areas such as antidumping and non-tariff measures. The last round the 1986-94 Uruguay Round led to the WTOs creation. The negotiations did not end there. Some continued after the end of the Uruguay Round. In February 1997 agreement was reached on telecommunications services, with 69 governments agreeing to wideranging liberalization measures that went beyond those agreed in the Uruguay Round.

A plurilateral agreement is a multi-national legal or trade agreement between more than two countries, but not a great many countries.

A plurilateral agreement implies that WTO member countries would be given the choice to agree to new rules on a voluntary basis. where all WTO members are party to the agreement. The Agreement on Government Procurement is typical plurilateral agreement.

Government Procurement Agreement

Cornerstone principles: non-discrimination and transparency The GPA establishes an agreed framework of rights and obligations among its Parties with respect to their national laws, regulations, procedures and practices in the area of government procurement. An important cornerstone principle in this regard is nondiscrimination. In respect of the procurement covered by the Agreement, Parties to the Agreement are required to accord to the products, services and suppliers of any other Party to the Agreement treatment no less favorable than they give to their domestic products, services and suppliers.

TARRIF REDUCTION(TRADE LIBERALIZATION)

The removal or reduction of restrictions or barriers on the free exchange of goods between nations. This includes the removal or reduction of both tariff (duties and surcharges) and non-tariff obstacles (like licensing rules, quotas and other requirements). The easing or eradication of these restrictions is often referred to as promoting "free trade." Those against trade liberalization claim that it can cost jobs and even lives, as cheaper goods flood the market (which at times may not undergo the same quality and safety checks required domestically). Proponents, however, say that trade liberalization ultimately lowers consumer costs, increases efficiency and fosters economic growth.

TWO DIMENTIONS: GATT AND SWISS FORMULA

The General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating international trade. According to its preamble, its purpose was the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis." It was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was signed in 1947 and lasted until 1994, when it was replaced by the World Trade Organization in 1995.

The Swiss Formula is a mathematical formula designed to cut and harmonize tariff rates in international trade. Several countries are pushing for its use in World Trade Organization trade negotiations. It was first introduced by the Swiss Delegation to the WTO during the current round of trade negotiations at the WTO, the Doha Development Round or more simply the Doha Round. Something similar was used in the Tokyo Round.

There is no question, however, that tariff reduction creates many economic benefits. Proponents of the WTO have emphasized its positive results by pointing to reductions in the cost of living, increases in income, and improvements in efficiency. Although these advocates recognize the controversial nature of the organizations rules and principles, which call for lower tariffs among member nations, they insist nonetheless that the WTO provides a democratic forum for resolving conflicts in an open, reasonably fair, and transparent manner.

OTHER TARRIF REDUCTION METHODS

Single rate: Tariffs are cut to a single rate for all products. Theoretically, this is the simplest outcome. In practice it is mainly used in regional free trade agreements where the final tariff rate is zero, or a low tariff, for trade within the group. Flat-rate percentage reductions: the same percentage reduction for all products, no matter whether the starting tariff is high or low. For example, all tariffs cut by 25% in equal steps over five years.

Harmonizing reductions. These are designed principally to make steeper cuts on higher tariffs, bringing the final tariffs closer together (to harmonize the rates): Different percentages for different tariff bands. For example, no cuts for tariffs between 0 and 10%, 25% cuts for tariffs between 11% and 50%, 50% cuts for tariffs above that, etc. A variation could include scrapping all tariffs below 5% which are sometimes seen as a nuisance with little benefit. These could be simple or average reductions within each band.

The WTO agreements are lengthy and complex because they are legal texts covering a wide range of activities. They deal with: agriculture, textiles and clothing, banking, telecommunications, government purchases, industrial standards and product safety, food sanitation regulations, intellectual property, and much more. But a number of simple, fundamental principles run throughout all of these documents. These principles are the foundation of the multilateral trading system.

Most-favoured-nation (MFN): treating other people equally Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members. This principle is known as most-favoured-nation (MFN) treatment . It is so important that it is the first article of the General Agreement on Tariffs and Trade (GATT), which governs trade in goods. MFN is also a priority in the General Agreement on Trade in Services (GATS) (Article 2) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (Article 4), although in each agreement the principle is handled slightly differently. Together, those three agreements cover all three main areas of trade handled by the WTO.

National treatment: Treating foreigners and locals equally Imported and locally-produced goods should be treated equally at least after the foreign goods have entered the market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. This principle of national treatment (giving others the same treatment as ones own nationals) is also found in all the three main WTO agreements (Article 3 of GATT, Article 17 of GATS and Article 3 of TRIPS, although once again the principle is handled slightly differently in each of these.

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