Expanding horizons

In the first part of the article last week, we discussed that despite numerous challenges inherited from the Tokyo Round, the Uruguay Round of trade negotiations aimed for ambitious results in areas such as industrial tariffs, agricultural trade, non-tariff barriers, textile & clothing, dispute resolution, and the compatibility of Regional Trade Agreements (RTAs) with GATT rules.

In this concluding part, we will discuss the broadening of scope of GATT, creation of the WTO, and strengthening of rules on safeguards, anti-dumping, and subsidies.

Broadening the scope of GATT and creation of the WTO

The two most important outcomes of the Uruguay Round were the broadening of the scope of GATT to include Services, Investment and Intellectual Property, and the creation of the WTO. Let us discuss these one by one.

Members of GATT had been discussing the possibility of bringing various issues under the ambit of multilateral rules. Some of these were trade in services, intellectual property and investment measures. These agreements were driven mainly by the developed world, and primarily by the USA and European Community (EC). In addition, the issue of modification of existing GATT rules on subsidies, safeguards and anti-dumping was under discussion for some time.

Accordingly, the Uruguay Round came up with new agreements in these areas:

* The General Agreement for Trade in Services (GATS) was driven mainly by the financial and telecom sector, since the large corporations in these sectors in the US and EC saw a major business opening in developing country services markets. The GATS was very much a GATT-like agreement with Most Favored Nation (MFN) and National Treatment continuing to be its important cornerstones. However, members could also notify exceptions to the MFN and National Treatment provisions. This was mostly done in the case of financial services, where even developed countries like the US and EC made exceptions. In addition, the GATS focused on the way the services would be provided: also called modes of delivery. The GATS commitments would be in the form of schedules, which would detail how foreign service providers could enter their markets and to what extent. The GATS had six parts and eight annexes, and listed the services in which members could make offers and take commitments. It also established a Council for Trade in Services which would be the negotiating body for trade in services.

* The Trade-related Investment Measures (TRIMS) Agreement basically made illegal those measures which were inconsistent with GATT obligations on National Treatment of Internal Taxation and Regulation and General Elimination of Quantitative Restrictions. Any TRIMS inconsistent with the agreement had to be notified and eliminated within two years.

* The Trade-related Aspects of Intellectual Property Rights (TRIPS) agreement established standards for protecting intellectual property, copyrights, trademarks, geographical indications, industrial designs and patents, layout designs on integrated circuits and anti-competitive practices in contractual licenses. The TRIPS agreement also had an MFN clause which extended all protection given under the World Intellectual Property Organisation (WIPO) to WTO members. The TRIPS agreement did not however cover all aspects of intellectual property, most notably in the areas of biotechnology and innovation in pharma and medicines. The TRIPS agreement also created the Council for TRIPS rights, where discussions on the matter could take place and members’ record on protecting intellectual property rights domestically could be monitored.

Strengthening of rules on safeguards, anti-dumping, and subsidies

Agreement on safeguards

This Agreement was inspired by Article XIX of the GATT text, which was titled Emergency Action on the Import of Particular Products. The basic idea in the article was that the importing countries could take protective measures against a sudden increase in imports of competing products, which could cause serious injury to the domestic industry. However, under Article XIX, safeguards have to be applied on an MFN basis and the affected countries can seek compensation, which is why most countries don’t resort to them. The new Agreement on Safeguards, which became a part of the WTO legal agreements, provided a more transparent mechanism to impose safeguards and established a clear method to determine what constitutes serious injury. It also set time limits for the continuation of such measures and established a Committee on Safeguards to monitor the operation of the Agreement.

Anti-dumping agreement

This relates to Article VI of the GATT Agreement and was agreed after long years of negotiations. It may be recalled that the first code on Anti-Dumping was discussed in the Kennedy Round and the second code in the Tokyo Round. The agreement was basically to discipline the practice of dumping, which was basically exporting a product at below its cost of production. Since dumping causes material injury to the domestic industry (i.e., the industry of the importing country), the importing country can take anti-dumping measures. The Agreement’s objective was to make anti-dumping measures more transparent and in accordance with procedures laid out in the Agreement. The Agreement provided details on how to initiate investigations into such measures, how to measure material injury and how to determine dumping margins. Finally, all anti-dumping measures could be imposed only for a period of five years,

Agreement on subsidies and countervailing measures

This Agreement supplemented Articles XVI and VI of the GATT agreement and built on the Tokyo Agreement on Subsidies. Under the Agreement, the use of subsidies was modified and subsidies were classified into prohibited, actionable and non-actionable subsidies. Prohibited subsidies were those which were contingent on export performance or those which were dependent on the use of domestic goods in preference to foreign goods. Actionable subsidies were those which caused serious or material injury to the industry of the importing country, and could be acted against with countervailing duties. Non-actionable subsidies were those which were primarily for the purposes of industrial research, economic development and adherence to environmental rules and were therefore permissible. Furthermore, countries with per capita income below USD 1000 were exempted from the ban on export subsidies and other developing countries had to phase them out in ten years. Subsidies on agricultural products were excluded from this agreement and covered under the Agreement on Agriculture.

Dispute settlement mechanism

This was perhaps the most significant addition in the Uruguay Round. A Dispute Settlement Mechanism (DSM) was set up, under which it was encouraged to resolve disputes through mediation and arbitration. An appellate review mechanism was also established, which was binding on all members.

Conclusion

The Uruguay Round moved from the GATT Agreement, which was essentially a contract among member countries, to the World Trade Organisation, which was an international organisation created through an international treaty. To be sure, the GATT 1994 text continues and is a part of the WTO texts. In that sense, the WTO is a successor to the GATT and a conclusion of the unfinished agenda of the Bretton Woods conference of 1944. It may be recalled that the Bretton Woods conference created the World Bank and International Monetary Fund, but failed to create the International Trade Organisation for reasons discussed in detail in the first article of this series. While GATT was limited to trade in goods, the WTO Agreements cover everything from trade in goods to trade in services, trade in agriculture, intellectual property and a dispute settlement mechanism. It also covers disciplines and rules on various trade remedies such as safeguards, anti-dumping and subsidies. Most importantly, the WTO emerged as an international organisation, with a permanent secretariat and a clear structure in the form of its various Councils and Committees.

The writer is Additional Chief Secretary, Department of Mass Education Extension and Library Services and Department of Cooperation, Government of West Bengal.