In its previous issue, The Metal started a series of publications devoted to Ukraine’s accession to the World Trade Organization. This article was prepared based on analysis of the GATT agreements, and describes the system of WTO norms and principles regu
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NORMS AND PRINCIPLES OF THE WTO
In its previous issue, The Metal started a series of
publications devoted to Ukraine’s accession to the World Trade Organization. This
article was prepared based on analysis of the GATT agreements, and describes the system of
WTO norms and principles regulating trade in commodities.
According to Ukraine’s balance of payments 2000, export
and import of goods account respectively for 80.5% and 82.5% of export of goods and
services from Ukraine. Thus, at the current stage of Ukrainian foreign trade development,
the most important issues for the country connected with accession to the WTO are
agreements on trade in commodities.
Principles and rules of trade in commodities are listed in
Attachment 1A to the Marrakesh agreement and include the General Agreement on Tariffs and
Trade (GATT 1994), which in turn includes GATT 1947, customs duties of member countries,
comments on decisions of Uruguay Round, etc.
The system of WTO agreements on commodity trade is based on
three fundamental principles: non-discrimination, reciprocity, and market access. The
first one is executed through the regime of most favored nation (or most favored nation
treatment). The second one implies that GATT agreements represent certain “agreed
equilibrium” of rights and obligations, and observation of mutual interests of member
countries. The principle of market access is based on equilibrium of rights and
obligations of the WTO member countries, and on determination of acceptable exclusions and
transparency.
As it was already mentioned in the previous article, the
first six rounds of GATT negotiations were devoted mainly to reduction of the customs
tariffs. In the seventh (Tokyo) round of trade negotiations (1973-1979) there were settled
the questions of non-tariff limitations and retaliatory measures against dishonest
competition, as well as questions with regard to hidden trade barriers. As a result of
Tokyo Round, a number of agreements regarding trade in commodities were adopted. Today the
problem of antidumping inquiries is very acute for Ukraine. In case Ukraine is recognized
as a country with market economy, due to excessive state regulation there might arise the
problem of compensation investigations.
According to the WTO rules, member countries have a right
to defend their domestic markets provided that these defensive measures do not contradict
to the goals and principles of the organization. In this regard, it is notable that
dumping and subsidized dumping are regarded as dishonest competition.
According to the WTO, subsidies are determined as financial
or other support by the state authorities of production, processing, sales,
transportation, exports, or consumption of the commodity, as a result of which legal
business entity of exporting country obtains benefits (profit). Agreement on subsidies and
compensation measures regulates issues connected with granting subsidies by the countries
and compensation measures. The state support is regarded as a subsidy if, according to the
WTO, access to this support is limited by a certain circle of enterprises, industries,
etc.
The WTO classifies subsidies as follows:
- “green” subsidies – these subsidies can be applied
and no retaliatory measures can be undertaken. This includes support of scientific and
research activities, support of the regions with unfavorable economic situation, and
adaptation of existing capacities to requirements of ecological safety;
- “yellow” subsidies – these subsidies are allowed,
however, the country, which incurred losses as a result of such subsidies, has a right to
apply compensation measures;
- “red” subsidies – are not allowed.
Introduction of antidumping measures on the international
level is regulated by an Agreement on application of article VI of GATT 1994.
In compliance with one of the classifications, which is
also used by the WTO, all the methods of international trade regulation (and protection of
domestic market in particular) are divided into tariff methods (regulation through customs
tariffs) and non-tariff methods. The most widely used in the world trade non-tariff
methods (limitations) are the following: quantitative limitations, introduction of minimal
import prices, availability of technical and administrative barriers, selective licensing
of imports, and other non-tariff measures that distort the trading system.
One of the main problems that a country faces during its
accession to the WTO is cut in customs duties, and, consequently, weakening of domestic
market (producer) protection, as well as the threat of decrease in cash inflow from
customs duties to the state budget. In principle, agreements signed in Uruguay Round of
GATT negotiations do not forbid protection of domestic market by limiting access of
imported commodities. However, one of the requirements of the WTO is that such protection
must be executed mainly by implementation of tariff measures. Introduction of non-tariff
barriers are allowed only on extraordinary occasions.
The following exceptions from the rules of trade in
commodities are legitimate:
- protection of the domestic market from dishonest
competition (antidumping and compensation measures);
- protection of the balance of payments by imposing
quantitative limitations or raising customs duties;
- in emergency situations, when imports of certain
commodities are too high and affect domestic producers, the country may suspend its
obligations with regard to other WTO members, and also temporarily amend tariff
concessions;
- general exceptions from the rules of trade, such as
protection of public morale; protection of human and animal life and health, protection of
flora; trade in commodities produced with utilization of forced labor; protection of
national artistic, historical and archeological values, etc.;
- some WTO (GATT) provisions may not be adhered to in case
when their application requires disclosure of information that can affect the national
security.
Besides to the aforementioned, WTO trading system provides
for a number of exceptions for customs unions and free trade zones, which were adopted
prior to existing preferential agreements, as well as some other.
In compliance with agreements signed in Uruguay Round of
GATT negotiations, industrially developed countries had to cut tariffs in a five-year
period. Cut in tariffs according to the list included in GATT 1994 provided for five
annual cuts in tariff rates; the first one took place on 1 January 1995, and the last one
– on 1 January 1999. At the closing stage, tariffs on industrial goods should be reduced
by 40%, and also the number of commodities, for which a minimal tariff is introduced, must
be decreased. Duty-free import is supposed to grow from 20% to 44%. On the whole, since
GATT was signed in 1947, average tariff on industrial commodities has been cut from 40% to
less than 4%.
For developing countries, there are certain preferential
conditions for cut in customs duties. There is also established a procedure of
step-by-step reduction of customs duties to the level determined during negotiations for
new members of the WTO.
However, one should not be too optimistic about these
privileges, since during negotiations both parties try, on the one hand, to open the
market of another country to their goods, and on the other, to protect their own domestic
markets. Therefore, excessive facilitation of the process of accession to the WTO may
result in unfavorable conditions, which would be very difficult to change afterwards.
According to the experts, Kyrgyzstan may serve a good example in this regard.
It is also worth mentioning that the circle of negotiations
and concessions that may be required from the country for its accession to the WTO is
quite wide. Besides to trade benefits, countries also try to negotiate certain privileges
for their companies, and bring forward non-standard requirements (usually regarding access
of foreign capital to selected industries and sectors of economy), which are demanded from
the country for its accession to the WTO. China is a good example illustrating the
aforementioned. The USA, while signing an agreement on bilateral trade with China, which
opened for the country the door to its accession to the WTO, pushed China for cut in
import duties on American goods for five years from 22.1% to 17%, and access for US
companies to a number of sectors of Chinese economy.