World Trade Organization Principles

1. Without Discrimination:

There are two main elements to this principle – Most Favoured Nation (MFN) Treatment and National Treatment. MFN Treatment is a World Trade Organisation (WTO) agreement which states that during trade, countries are not permitted to discriminate between their partners i.e. special or preferential treatment cannot be given to another WTO member country. The MFN Treatment principle is a central element used in drawing up the GATT, GATS, and TRIPS agreements, and combined, cover all areas of trade documented by the WTO.

There are exceptions to the MFN Treatment principle however, as free trade agreements can be set up between nations, which discriminate against outside goods.

The North American Free Trade Agreement (NAFTA) is an example of a free trade agreement between nations, whereby Mexico, Canada, and the U.S. allow free trade between their countries, without restrictions or tariffs. An exception such as this will only be tolerable under very stringent conditions, as all partners must be treated equally.

There is currently still a plethora of barriers which restrict trade throughout certain parts of the world including custom tariffs, import bans or restrictive quotas. In some countries, overly abundant amounts of “red tape” intensify complications in possible trade agreements, therefore discouraging others from conducting business with them. Exchange rate policies are also an extremely prevalent issue at the moment due to the current state of the worldwide economy and the unstable nature of many of the world’s currencies. These barriers and issues have been tackled head on by the General Agreement on Tariffs and Trade (GATT) since its inception in 1948, and is currently in the midst of the Doha Development Agenda, its ninth round of negotiations since it was signed into agreement.

These rounds of negotiations have primarily focused on reducing tariffs which affect the importing of goods into different countries. The GATT has proved hugely successful, and by the 1980’s negotiations had expanded to include custom duties imposed on services as well as intellectual properties. A recent example of the benefits of having freer trading system possibilities is the deal that was struck in 2010 between China and the members of the Association of Southeast Asian Nations (ASEAN). This relatively new free trade area has seen a sharp rise in trade and investment as ties between the nations strengthen and relationships grow. The benefits to the economies of the participating nations are plentiful and this particular free trade agreement has become a shining example to all developing countries.

3. Predictable:

The principle of predictability is a concept which is of particular importance to governments when deciding on what action to take in relation to future trading. Predictability can be achieved through measures known as binding and transparency. Binding simply means that when a country opens its market to allow in foreign goods, they have a “binding” agreement on the tariffs imposed on the incoming goods. However, in certain circumstances, such as when a developed country is dealing with a developing country, the developed country will lower the tariff rate on the developing countries’ incoming products. Bindings can be changed, but only if all trading partners are agreeable to the change. An example of a binding agreement in action is the Uruguay Round.

These talks, carried out from 1986 to 1994, set out to increase the amount of trading conducted under binding agreements, so as to increase the degree of market security for all traders. The talks were highly successful, especially for developing countries, where the percentage of binding tariffs rose from 21% prior to the talks, to 73% after the talks had concluded (WTO, 2012). The WTO also identifies ‘transparency’ as important when trading on a multilateral stage, as it is each government’s obligation to declare their policies and practices to the organisation. By promoting this practice, the WTO can observe all trading between countries, and ensure that the necessary protocols are being followed. Transparency fits neatly into the idea of predictability, as future challenges would be easier to identify if all partners have clearly stated procedures, allowing for unproblematic binding agreements.

4. More Competitive:

The WTO does not look to eradicate competition from trade around the world, nor does it aim to abolish all forms of tariffs or regulations which may be called for from certain countries or in certain circumstances. Its core objective is to establish a basis for truly open and fair competition, governed by roundly acceptable guidelines. The WTO strives to enforce strict measures against discrimination, by imposing the most favoured nation (MFN) rule. This rules that every country afforded the MFN must not be given any less or any more preferential treatment than any other country afforded the same status, and is bestowed upon every member of the WTO.

The WTO also looks to safeguard against “dumping”, which occurs when a manufacturer agrees to export materials or a product to a foreign market for a lower price than they would sell in their own domestic market. This is also known as selling under “fair value”, and can cause damage to the industry market of the importing country. All of these aforementioned rules, as well as many more which are instilled by the WTO into all of their member states, aim to safeguard against unfair competitive advantages gained by countries participating in underhanded deals.

5. More Beneficial for Less Competitive Countries:

In order for developing countries to expand their respective economies to sufficient standards, they need to be allowed to put into operation their own strategies and structures which will enable the country to flourish, within the terms they have agreed with the WTO. This flexibility provided by the WTO to the developing countries may come in the form of special considerations, which permits the country’s economies to make their own choices in respect to its natural growth.

As a result of the Uruguay round of negotiations, developing countries have agreed to take on the same responsibilities as the already developed member nations of the WTO. However, the developing countries in question were provided a transitional period in which they were able to familiarise themselves with the more complex and foreign practices which they have agreed too. This is seen as most helpful for the more under developed, less well off nations.

References:
* World Trade Organisation, (2012). Principles of the trading system. Available at: http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm (Accessed 27 November 2012).