GUIDING PRINCIPLES OF WTO

The Guiding Principles of World Trade Organization (WTO)

Right from its inception, the WTO has been driven by a number of fundamental principles which are the foundations of the multilateral trading system. Following are the major guiding principles:

1. Trade without discrimination: Most-favoured-nation (MFN): Originally formulated as Article 1 of GATT, this principle states that any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be extended immediately and unconditionally to the like product originating or destined for the territories of all other contracting parties. Under the WTO agreements, countries cannot normally discriminate between their trading partners. If a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all other WTO members. Under strict conditions, various permitted exceptions are allowed. For example; countries may enter into free trade agreements and trading may be done within the group discriminating against goods from outside; a country can raise barriers against products that are considered to be traded unfairly from specific countries; or they may give special market access to developing countries.

2. The National Treatment Principle (NTP): The National Treatment Principle is complementary to the MFN principle. GATT Article III requires that with respect to internal taxes, internal laws, etc. applied to imports, treatment not less favourable than that which is accorded to like domestic products must be accorded to all other members. In other words, a country should not discriminate between its own and foreign products, services or nationals. For instance, once imported apples reach Indian market, they cannot be discriminated against and should be treated at par in respect of marketing opportunities, product visibility or any other aspect with locally produced apples.

3. Freer trade: Lowering trade barriers for opening up markets is one of the most obvious means of encouraging trade. But by the 1980s, the negotiations had expanded to cover non-tariff barriers on goods, and to the new areas such as services and intellectual property. Since these require adjustments, the WTO agreements permit countries to bring in changes gradually, through “progressive liberalization”. Developing countries are generally given longer time to conform to their obligations.

4. Predictability: Investments will be encouraged only if the business environment is stable and predictable. The foreign companies, investors and governments should be confident that the trade barriers will not be raised arbitrarily. This is achieved through ‘binding’ tariff rates, discouraging the use of quotas and other measures used to set limits on quantities of imports, establishing market-opening commitments and other measures to ensure transparency. A country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade.

5. Principle of general prohibition of quantitative restrictions: One reason for this prohibition is that quantitative restrictions are considered to have a greater protective effect than tariff measures and are more likely to distort the free flow of trade

6. Greater competitiveness: This is to be achieved by discouraging “unfair” practices such as export subsidies, dumping etc. The rules try to establish what is fair or unfair, and how governments can take action, especially by charging additional import duties intended to compensate for injury caused by unfair trade.

7. Tariffs as legitimate measures for the protection of domestic industries: The imposition of tariffs should be the only method of protection, and tariff rates for individual items should be gradually reduced through negotiations ‘on a reciprocal and mutually advantageous’ basis. Member countries bind themselves to maximum rates and the imposition of tariffs beyond such maximum rates (bound rates) or the unilateral raise in bound rates are banned.

8. Transparency in Decision Making: The WTO insists that any decisions by members in the sphere of trade or in respect of matters affecting trade should be transparent and verifiable. Such changes in matters of trade or of trade related rules have to be invariability and without delay be notified to all the trading partners. In case of any opposition to such changes, they should be appropriately addressed and any loss occurring to the affected members should be suitably compensated for.

9. Progressive Liberalization: Many trade issues of a controversial nature similar to labour standards, non-agricultural market access, etc. on which there was general disagreement among trading partners were left unsettled during the Uruguay Round. These are to be liberalized during consecutive rounds of discussion.

10. Market Access: The WTO aims to increase world trade by enhancing market access by converting all non- tariff barriers into tariffs which are subject to country specific limits. Further, in major multilateral agreements like the Agreement on Agriculture (AOA), to specific targets have been specified for ensuring market access.

11. Special privileges to less developed countries: With majority of WTO members being developing countries and countries in transition to market economies, the WTO deliberations favour less developed countries by giving them greater flexibility, special privileges and permission to phase out the transition period. Also, these countries are granted transition periods to make adjustments to the not so familiar and intricate WTO provisions.

12. Protection of Health & Environment: The WTO’s agreements support measures to protect not only the environment but also human, animal as well as plant health with the stipulation that such measures should be non- discriminatory and that members should not employ environmental protection measures as a means of disguising protectionist policies.

13. A transparent, effective and verifiable dispute settlement mechanism: Trade relations frequently involve conflicting interests. Any dispute arising out of violation of trade rules leading to infringement of rights under the agreements or misunderstanding arising as regards the interpretation of rules are to be settled through consultation. In case of failures, the dispute can be referred to the WTO and can pursue a carefully mapped out, stage-by-stage procedure that includes the possibility of a judgment by a panel of experts, and the opportunity to appeal the ruling on legal grounds. The decisions of the dispute settlement body are final and binding.