• home

    The World Trading system: What's in it for Business?


    © International Trade Centre, International Trade Forum - Issue 1/2001

    As more and more small and medium-sized firms expand internationally, the abstract concept of a world trading system suddenly takes on a new meaning. Governments, industry associations and firms are all faced with similar questions from different perspectives. How can standards be set so that our industries remain competitive? Can tariffs be lowered abroad for products of interest to our industry?

    ITC has information that can point businesses, industry associations and governments in the right direction. One key source is the Business Guide to the World Trading System, published in late 1999 by ITC and the Commonwealth Secretariat. This article, adapted from excerpts of the Business Guide, analyses why the WTO Agreements attract increasing interest and outlines the benefits for business.

    When the Uruguay Round of trade negotiations was launched in 1986, only a few developing countries showed active interest in the work of the Geneva-based General Agreement on Tariffs and Trade (GATT) by appointing national negotiators to serve in Geneva.

    Interest grows in the world trading system

    Eight years later in 1994, when the Uruguay Round was completed and the World Trade Organization was created, many more countries were engaged in trade negotiations. The majority of them have now established permanent missions in Geneva. At present, 136 countries are members of the WTO, and over 30 developing countries and transition economies are negotiating for accession. These include countries with a significant impact on international trade like China, the Russian Federation and Ukraine.

    What has led to the change in the attitude towards membership of the WTO and why are countries showing greater interest in the rule-based system that has emerged from the Uruguay Round? Among the reasons are:

    Pace and scope of globalization. The world economy is globalizing rapidly through international trade and the flow of foreign direct investment. Revolutionary changes in transport and communications make it possible even for small manufacturers in developing countries to look for markets in countries thousands of miles away.

    Shifting economic and trade policies. Communism's collapse paved the way for gradual adoption of market-oriented policies in most countries where production and trade were nationally controlled. These countries, which in the past traded primarily among themselves, are increasingly trading on a worldwide basis. Many developing countries have replaced import substitution policies with export-oriented policies, under which they seek to promote economic growth by exporting more and more of their products.

    Global sourcing. Firms increasingly obtain components and intermediate products from countries where costs are lower, and establish production facilities there. Thus, the products available on the market today - whether consumer items like ready-made garments, consumer durables such as refrigerators, or capital goods - often result from production processes undertaken in more than one country.

    Increased dependence on trade - both as exporters and as importers of goods and services - has made governments and businesses aware that an international system has a role to play in safeguarding their trade interests. The rules-based system assures them that access to foreign markets is not suddenly disrupted by higher tariffs or import restrictions, and that supplies are imported at competitive costs and without delays. Businesses can consequently plan export production without fear that foreign markets may be lost due to restrictive government actions.

    Benefits to the business community

    How is the WTO system relevant to international business decisions taken by industry associations and firms? In short, governments negotiate improved market access to enable firms to convert trade concessions into trade opportunities.

    Business communities in many developing countries, however, are not entirely aware of the system's advantages. The main reason is the system's immense complexity, which has so far prevented these communities from taking an interest in, and getting acquainted with, its rules. It is, for instance, not widely known that the legal system not only confers benefits on producing industries and business enterprises but also creates rights in their favour.

    Benefits to exporters

    Security of access. Binding (putting a ceiling on tariff increases) provides secure access to markets, enabling exporting industries to make investment and production plans under greater conditions of certainty.

    In trade in goods, almost all tariffs of developed countries and a high proportion of those of developing and transitional economies have been bound against further increases in WTO. Binding ensures that importing countries will not disrupt improved market access (resulting from the tariff reductions agreed and incorporated into each country's schedule of concessions) by sudden increases in rates of duties or by other restrictions. In trade in services, countries have made binding commitments not to restrict access to ser-vice products and foreign service suppliers beyond the conditions and limitations specified in their national schedules.

    Stability of access. The system provides stability of access to export markets, as all countries are required to apply the uniform set of rules in the various Agreements. Thus countries must ensure that their rules - to determine dutiable value for customs purposes, to inspect products to ascertain conformity to mandatory standards, or to issue import licences - conform to provisions of the relevant Agreements.

    Benefits to importers

    Enterprises often have to import raw materials, intermediate products and ser-vices for export production purposes. To facilitate imports, the basic rule requires that imports be allowed in without further restrictions upon payment of duties, and that other national regulations applied at the border conform to the uniform rules laid down by the Agreements.

    Exporters thus have some assurance that they can obtain their requirements without delay and at competitive costs. Tariff bindings also assure importers that their importing costs will not be increased by higher customs duties.

    Rights of domestic producers and importers

    Some Agreements require the legislation of member countries to provide certain rights to domestic producers and importers. Governments are obliged to enforce some of these rights under their legal systems. In regard to other rights, governments are merely asked to use their best endeavours to ensure that the parties concerned can benefit fully from them.

    Enforceable rights include those stemming from the Agreement on Customs Valuation, which obliges governments to legislate that importers have a right:

    • To justify declared value, where customs expresses doubts about the truth or accuracy of that value; and

    • To require customs to give them in writing its reasons for rejecting the declared value, so that they can appeal to higher authorities against the decision.

    Rights requiring governments merely to use their best endeavours include those covered by the Agreement on Import Licensing, which calls for import licences to be issued within specified periods after receipt of application. In this example, unless the national legislation provides otherwise, the importer has a right only to expect that the licence will be issued within the stipulated time.

    The claim to such rights is often subject to conditions that the domestic industry or firm must fulfil. For instance, an industry has the right to request from its government increased temporary protection by taking safeguard action or levying anti-dumping duties, where it considers imported goods are being dumped, or to levy countervailing duties where lower prices are the result of subsidies. The petitioner must always demonstrate that increased imports of such products cause injury to the domestic industry. Before commencing investigations, the authorities must further ascertain whether the petitioner is supported by producers representing a substantial proportion of total production.

    Rights of exporters

    An example of the rights which the Agreements create in favour of exporters is the right to give evidence for the levy of anti-dumping or countervailing duties during investigations in importing countries.

    When the authorities in importing countries fail to honour their rights, exporters cannot approach them directly for redress. Exporters must take the matter up with their own governments, which may pursue the issue bilaterally with the government of the importing country. If necessary, a government can raise issues under WTO procedures for dispute settlement.

    Using WTO dispute settlement procedures

    Knowledge of the system enables business communities to help their governments to take full advantage of the WTO mechanism to monitor implementation of the Agreements and to settle differences and disputes. Governments take up issues for discussion and solution in the appropriate committees only if exporters bring to their notice the marketing problems resulting from violation of the rules.

    Furthermore, governments can raise a complaint under the WTO dispute settlement procedures only if the affected industry first raises the complaint and provides the required information.

    Influencing negotiations

    The private sector's responsibility does not stop with bringing to the notice of their governments the practical problems they encounter. They and their national associations must exercise continuous vigilance and closely follow the ongoing work of WTO. Negotiations do not cease with the adoption of Agreements. Further negotiations with important implications for trade are often held during the implementation stage, particularly during periodic reviews to examine how the Agreements are operating.

    Feedback from the business community on the practical problems it has encountered (such as the technical regulations or sanitary and phytosanitary measures applied to imports by importing countries) would greatly assist governments in securing appropriate modifications to the Agreements.

    In addition, analytical work on six new subject areas is now under way in WTO, with a view to finding out whether WTO rules in these areas would be appropriate. The views of business communities on how their interests and concerns can be taken into account are of vital importance to governments in deciding on the policy approaches they should adopt. The areas are: electronic commerce, environment, investment, competition policy and transparency in government procurement.

    The only way that business communities can ensure that their interests and concerns are fully reflected by their governments is to closely follow reviews of Agreements and negotiations to adopt rules in new subject areas. While WTO meetings are closed to the public and documentation on these meetings is restricted, member countries have recently taken steps towards greater transparency. Documents are now ordinarily de-restricted after six months. Reports of the panels and of the Appellate Body in dispute settlement cases are de-restricted at the time of issue. All such documents are now available to the general public on the WTO web site (http://www.wto.org).

    Non-governmental organizations (NGOs) - representing different interests such as business, environment and development issues, consumers, trade unions and farmers - play an important role in increasing public awareness of WTO activities. The WTO secretariat has been seeking to improve its contacts with civil society by arranging periodic issue-specific symposia on subjects like trade and the environment, trade and development, and trade facilitation. NGOs are allowed to attend plenary sessions of the Minis-terial Conferences, and are regularly briefed by the WTO secretariat on the Conferences' working sessions. One of the issues that will be addressed in the coming years is making WTO work more transparent by providing greater access to information on WTO activities.

    Taking advantage of liberalization measures

    The business community can do more than help governments develop policy approaches to discussions on implementation of the Agreements and on rule-making negotiations. The business community has the primary responsibility to convert tariff reductions and liberalization commitments into trade opportunities through its export promotion and development strategies. Detailed knowledge of the concessions on goods and service products of actual and potential interest to the community is necessary to develop such strategies.

    Internet sources

    World Trade Organization
    The WTO web site has information on WTO laws, enquiry and information points; liberali-zation commitments of individual countries; and WTO's ongoing work. It also features the Trade and Development Centre, a joint WTO-World Bank project for government and business leaders in developing countries.

    ITC's World Tr@de Net
    Targeted to the business community in developing countries, ITC's web site complements the WTO site with information on ITC's World Tr@de Net programme, as well as reference and training materials on selected business issues of the trading system.

    ITC's Services Exporting Homepage
    Information on all service categories and subsectors of the General Agreement on Trade in Services (GATS) is included on this site.

    Integrated Framework for Trade-related Technical Assistance to Least Developed Countries
    Available on this site is current and planned technical assistance for LDCs of the IMF, ITC, UNCTAD, UNDP, the World Bank and WTO. The site is operated by the Integrated Framework Administrative Unit, located at ITC.

    JITAP Communication and Discussion Facility
    Targeted to Benin, Burkina Faso, Côte d'Ivoire, Ghana, Kenya, Tunisia, Uganda and the United Republic of Tanzania, the site helps business leaders and government officials build expertise in the multilateral trading system. JITAP is the Joint ITC/UNCTAD/WTO Integrated Technical Assistance Programme.

    Recent ITC Publications on the World Trading System


    • Business Guide to the World Trading System (1999)

    • Business Guide to the General Agreement on Trade in Services (1999)

    • Trade in Information Technology Products and the WTO Agreements (1999)

    • The Global Spice Trade and the Uruguay Round Agreements (1996)

    Technical Papers

    • Implications of World Trade Organization Agreements for International Trade in Environmental Industries (1999)

    • Uruguay Round Agreements Implications for International Trade in Medical Devices (1999)

    This article is adapted from the Business Guide to the World Trading System. The book, a joint publication of ITC and the Commonwealth Secretariat, was written by Vinod Rege.