South Africa’s relationship with the International Community – Guide to Importing into South Africa

World Trade Organisation (WTO) is the legal and institutional foundation of the multilateral trading system. It provides the principal contractual obligations determining how governments frame and implement domestic trade legislation and regulations. And it is the platform on which trade relations among countries evolve through collective debate, negotiation and adjudication.

WTO was established on 1 January 1995. Governments had concluded the Uruguay Round negotiations on 15 December 1993 and Ministers had given their political backing to the results by signing the Final Act at a meeting in Marrakesh, Morocco, in April 1994. The ‘Marrakesh Declaration’ of 15 April 1994, affirmed that the results of the Uruguay Round would “strengthen the world economy and lead to more trade, investment employment and income growth throughout the world”. WTO is the embodiment of the Uruguay Round results and the successor to the General Agreement on Tariffs and Trade (GATT).

Out of a potential membership of 152 countries and territories, 76 governments became members of the WTO on its first day, with some 50 other governments at various stages of completing their domestic ratification procedures, and the remainder engaged in negotiating their terms of entry.

Not only does the WTO have a potentially larger membership than GATT (128 by the end of 1994), it also has a much broader scope in terms of the commercial activity and trade policies to which it applies. The GATT applied only to trade in merchandise goods; the WTO covers trade in goods, services and “trade in ideas” or intellectual property.

The WTO is based in Geneva, Switzerland. Its essential functions are:

• administering and implementing the multilateral and plurilateral trade agreements which together make up the WTO
• acting as a forum for multilateral trade negotiations
• seeking to resolve trade disputes
• overseeing national trade policies
• cooperating with other international institutions involved in global economic policy-making

THE PRINCIPLES OF THE TRADING SYSTEM

The WTO Agreement contains some 29 individual legal texts – covering everything from agriculture to textiles and clothing, and from services to government procurement, rules of origin and intellectual property. Added to these are more than 25 additional Ministerial declarations, decisions and understandings which spell out further obligations and commitments for WTO members. However, a number of simple and fundamental principles run throughout all of these instruments which, together, make up the multilateral trading system.

Trade without discrimination

For almost fifty years, key provisions of GATT outlawed discrimination among members and between imported and domestically-produced merchandise. According to Article 1, the famous “most-favoured-nation” (MFN) clause, members are bound to grant to the products of other members treatment no less favourable than that accorded to the products of any other country. Thus, no country is to give special trading advantages to another or to discriminate against it: all are on an equal basis and all share the benefits of any moves towards lower trade barriers.

There are a number of exceptions to Article 1 – notably that covering customs unions and free-trade areas. However, most-favoured-nation treatment generally ensures that developing countries and others with little economic leverage are able to benefit freely from the best trading conditions wherever and whenever they are negotiated.

A second form of non-discrimination known as “national treatment”, requires that once goods have entered a market, they must be treated no less favourably than the equivalent domestically-produced goods. This is Article III of the GATT.

Apart from the revised GATT (known as “GATT 1994”), several other WTO agreements contain important provisions relating to MFN and national treatment. That on Trade-Related Aspects of Intellectual Property Rights (TRIPS) contains, with some exceptions, MFN and national treatment requirements relating to the provision of intellectual property protection by WTO members. The General Agreement on Trade in Services (GATS) requires members to offer MFN treatment to services and service suppliers of other members. However, it permits listed exemptions to the MFN obligation covering specific measures for which WTO members are unable to offer such treatment initially. Where such exemptions are taken, they are to be reviewed after five years and should not be maintained for more than ten years. On the other hand, national treatment is only an obligation in the GATS where members explicitly undertake to accord it for particular services or service activities. This means that national treatment is often the result of negotiations among members.

Other WTO agreements with non-discrimination provisions include those on rules of origin; preshipment inspection; trade-related investment measures; and the application of sanitary and phytosanitary measures.

Predictable and growing access to markets

The multilateral trading system is an attempt by governments to provide investors, employers employees and consumers with a business environment which encourages trade, investment and job creation as well as choice and low prices in the market place. Such an environment needs to be stable and predictable, particularly if businesses are to invest and thrive.

The existence of secure and predictable market access is largely determined by the use of tariffs, or customs duties. While quotas are generally outlawed, tariffs are legal in the WTO and are commonly used by governments to protect domestic industries and to raise revenues. However, they are subject to disciplines – for instance, that they are not discriminatory among imports – and are largely “bound”. Binding means that a tariff level for a particular product becomes a commitment by a WTO member and cannot be increased without compensation negotiations with its main trading partners (Article XXVIII of GATT 1994). Thus it can be the case that the extension of a customs union can lead to higher tariffs in some areas for which compensation negotiations are necessary.

Following the establishment of the GATT of 1948, average tariff levels fell progressively and dramatically through a series of seven trade rounds. The Uruguay Round added to that success, cutting tariffs substantially, sometimes to zero, while raising the overall level of bound tariffs significantly. The commitments on market access through tariff reductions made by over 120 countries in the Uruguay Round are contained in some 22 500 pages of national tariff schedules.

Tariff reductions, for the most part phased in over five years, will result in a 40 per cent cut in developed countries’ tariffs on industrial products, from an average of 6.3 per cent to 3.8 per cent, and a jump from 20 to 44 per cent in the value of imported industrial products that receive duty-free treatment in developed countries. At the higher end of the tariff structure, the proportion of imports into developed countries from all sources that encounter tariffs above 15 per cent will decline from 7 to 5 per cent and from 9 to 5 per cent for imports from developing countries.

The Uruguay Round increased the percentage of bound product lines from 78 to 99 per cent for developed countries, 21 to 73 per cent for developing economies and from 73 to 98 per cent for economies in transition – results which are providing a substantially higher degree of market security for traders and investors.

The “tariffication” of all non-tariff import restrictions for agricultural products provided a substantial increase in the level of market predictability for agricultural products. More than 30 per cent of agricultural produce had been subject to quotas or import restrictions. Virtually all such measures have now been converted to tariffs which, while initially providing substantially the same level of protection as previous non-tariff measures, are being reduced during the six years of implementation of the Uruguay Round agricultural agreement. The market access commitments on agriculture will also eliminate previous import bans on certain products.

While tariffs at the border do not exist for trade in services, there is no less a need for predictable conditions. To meet that need, governments undertook an initial set of commitments covering national regulations affecting various service activities. These commitments are, like those for tariffs, contained in binding national schedules and will be extended through further rounds of services negotiations in the future.

Many other WTO agreements seek to ensure conditions of investment and trade are more predictable by making it very difficult for member governments to change the rules of the game at whim. In almost every policy area which impinges on trading conditions, the scope of members to pursue capricious, discriminatory and protectionist policies is constrained by WTO commitments.

The key to predictable trading conditions is often the transparency of domestic laws, regulations and practices. Many WTO agreements contain transparency provisions which require disclosure at the national level – for instance, through publication in official journals or through enquiry points – or at the multilateral level through formal notifications to the WTO. Much of the work of WTO bodies is concerned with reviewing such notifications. The regular surveillance of national trade policies through the Trade Policy Review Mechanism provides a further means of encouraging transparency both domestically and at the multilateral level.

Promoting fair competition

The WTO is not the “free-trade” institution it is sometimes described as – if only because it permits tariffs and, in limited circumstances, other forms of protection. It is more accurate to say it is a system of rules dedicated to open, fair and undistorted competition.

Rules on non-discrimination are designed to secure fair conditions of trade and so too are those on dumping and subsidies. Previous GATT rules, which laid down the basis on which governments could impose compensating duties on these two forms of “unfair” competition, were extended and clarified in WTO agreements.

The WTO Agreement on agriculture is designed to provide increased fairness in farm trade. That on intellectual property will improve conditions of competition where ideas and inventions are involved, and the GATS will do the same thing for trade in services. The plurilateral agreement on government procurement will extend competition rules to purchases by thousands of “government” entities in many countries. There are plenty of other examples of WTO provisions which are designed to promote fair and undistorted competition.

Encouraging development and economic reform

Over three-quarters of WTO members are developing countries and countries in the process of economic reform from non-market systems. During the seven-year course of the Uruguay Round – between 1986 and 1993 – over 60 such countries implemented trade liberalisation programmes. Some did so as part of their accession negotiations to GATT while others acted on an autonomous basis. At the same time, developing countries and transition economies took a much more active and influential role in the Uruguay Round negotiations than in any previous round.

This trend effectively killed the notion that the trading system existed only for industrialised countries. It also changed the previous emphasis on exempting developing countries from certain GATT provisions and agreements. With the end of the Uruguay Round, developing countries showed themselves prepared to take on most of the obligations that are required of developed countries. They were, however, given transition periods to adjust to the more unfamiliar and, perhaps, difficult WTO provisions – particularly so for the poorest, “least-developed” countries. In addition, a Ministerial decision on measures in favour of least-developed countries gives extra flexibility to those countries in implementing WTO agreements; calls for an acceleration in the implementation of market access concessions affecting goods of export interest to those countries; and seeks increased technical assistance for them. Thus, the value to development of pursuing, as far as is reasonable, open market-oriented policies, based on WTO principles, is widely recognised. But so is the need for some flexibility with respect to the speed at which those policies are pursued.

Nevertheless, the provisions of the GATT intended to favour developing countries remain in place in the WTO. In particular, Part IV of GATT 1994 contains three articles, introduced in 1965, encouraging industrial countries to assist developing-nation members “as a matter of conscious and purposeful effort” in their trading conditions and not to expect reciprocity for concessions made to developing countries in negotiations. A second measure, agreed at the end of the Tokyo Round in 1979 and normally referred to as the “enabling clause”, provides a permanent legal basis for the market access concessions made by developed to developing countries under the generalised system of preferences (GSP).

The case for open trade

The economic case for an open trading system based upon multilaterally agreed rules is simple enough and rests largely on commercial common sense.

All countries, including the poorest, have assets – human, industrial, natural, financial – which they can employ to produce goods and services for their domestic markets or to compete overseas. “Comparative advantage” means that countries prosper by taking advantage of their assets in order to concentrate on what they can produce best. This happens naturally for firms in the domestic market, but that is only half the story. The other half involves the world market. Most firms recognise that the bigger the market the greater their potential – in terms of achieving efficient scales of operation and having access to large numbers of customers. In other words, liberal trade policies which allow the unrestricted flow of goods, services and productive inputs multiply the rewards that come with producing the best products, with the best design, at the best price.

But trading success is not a static thing. Competitiveness in particular products can move from company to company when the market changes or new technologies make cheaper and better products possible. History and experience show that whole countries which have enjoyed an advantage, say, in the cost of labour or natural resources, can also become uncompetitive in some goods or services as their economies develop. However, with the stimulus of an open economy, they move on to become competitive elsewhere. This is, in general, a gradual process. For as much as the trading system is allowed to operate without the constraints of protectionism, firms are encouraged to adapt in an orderly and relatively painless way to focus on new products, finding either a new “niche” in their current area or expanding into new product areas.

The alternative of import protection and perpetual government subsidies leads to bloated, inefficient companies supplying consumers with outdated, unattractive products. Ultimately, factories close and jobs are lost despite protection and subsidies. If other governments pursue such policies overseas, markets contract and world economic activity is reduced. One of the objectives of the WTO is to prevent such a self-defeating and destructive drift into protectionism.

A brief history of GATT

The WTO’s predecessor, the GATT, was established on a provisional basis after the Second World War in the wake of other new multilateral institutions dedicated to international economic cooperation – notably the “Bretton Woods” institutions now known as the World Bank and the International Monetary Fund.

The original 23 GATT countries were among 50 which agreed a draft Charter for an International Trade Organisation (ITO) – a new specialised agency of the United Nations. The Charter was intended to provide not only world trade disciplines but also contained rules relating to employment, commodity agreements, restrictive business practices, international investment and services.

In an effort to give an early boost to trade liberalisation after the Second World War – and to begin to correct the large overhang of protectionist measures which remained in place from the early 1930’s – tariff negotiations were opened among the 23 founding GATT “contracting parties” in 1946. The first round of negotiations resulted in 45 000 tariff concessions affecting $10 billion – or about one-fifth – of world trade. It was also agreed that the value of these concessions should be protected by early – and largely “provisional” – acceptance of some of the trade rules in the draft ITO Charter. The tariff concessions and rules together became known as the General Agreement on Tariffs and Trade and entered into force in January 1948.

Although the ITO Charter was finally agreed at a UN Conference on Trade and Employment in Havana in March 1948, ratification in national legislatures proved impossible in some cases. When the United States’ government announced, in 1950, that it would not seek Congressional ratification of the Havana Charter, the ITO was effectively dead. Despite its provisional nature, the GATT remained the only multilateral instrument governing international trade from 1948 until the establishment of the WTO.

Although, in its 47 years, the basic legal text of the GATT remained much as it was in 1948, there were additions in the form of “plurilateral” – voluntary membership – agreements and continual efforts to reduce tariffs. Much of this was achieved through a series of “trade rounds”.

Trade rounds – the package route to progress

The biggest leaps forward in international trade liberalisation have come through multilateral trade negotiations, or “trade rounds”, under the auspices of GATT – the Uruguay Round was the latest and most extensive.

Although often lengthy, trade rounds offer a package approach to trade negotiations; an approach with a number of advantages over issue-by-issue negotiations. For a start, a trade round allows participants to seek and secure advantages across a wide range of issues. Second, concessions which are necessary but would otherwise be difficult to defend in domestic political terms, can be made more easily in the context of a package which also contains politically and economically attractive benefits. Third, developing countries and other less powerful participants have a greater chance of influencing the multilateral system in the context of a round than if bilateral relationships between major trading nations are allowed to dominate. Finally, overall reform in politically-sensitive sectors of world trade can be more feasible in the context of a global package – reform of agricultural trade was a good example in the Uruguay Round.

Most of GATT’s early trade rounds were devoted to continuing the process of reducing tariffs. The results of the Kennedy Round in the mid-sixties, however, included a new GATT Anti-Dumping Agreement. The Tokyo Round during the seventies was a more sweeping attempt to extend and improve the system.

Tokyo Round – A first try at reforming the trading system

Conducted between 1973 and 1979 and with 102 participating countries, the Tokyo Round continued GATT’s efforts to progressively reduce tariffs. The results included an average one-third cut in customs duties in the world’s nine major industrial markets, bringing the average tariff on manufactured products down to 4.7 per cent compared with about 40 per cent at the time of GATT’s creation. The tariff reductions, phased in over a period of eight years, involved an element of harmonisation, bringing the highest tariffs down proportionately more than the lowest.

Elsewhere, the Tokyo Round had mixed results. It failed to come to grips with the fundamental problems affecting farm trade and also stopped short of providing a new agreement on “safeguards” (emergency import measures). Nevertheless, a series of agreements on non-tariff barriers did emerge from the negotiations, in some cases interpreting existing GATT rules, in others breaking entirely new ground. In most cases, only a relatively small number of, mainly industrialised, GATT members ascribed to these agreements and arrangements which, as a consequence, were often referred to as “codes”. They include the following agreements:

• Subsidies and countervailing measures – interpreting Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade
• Technical barriers to trade – sometimes called the Standards Code
• Import licensing procedures
• Government procurement
• Customs valuation – interpreting Article VII
• Anti-dumping – interpreting Article VI and replacing the Kennedy Round Anti-Dumping code
• Bovine Meat Arrangement
• International Dairy Arrangement
• Trade in Civil Aircraft

Several of the above codes were amended and extended in the Uruguay Round. Those on subsidies and countervailing measures, technical barriers to trade, import licensing, customs valuation and anti-dumping, are now multilateral commitments within the WTO Agreement – in other words, all WTO members are committed to them – while those on government procurement, bovine meat, dairy products and civil aircraft remain “plurilateral” agreements.

A brief description of each of these agreements, as they are now applied in the WTO, will be found on pages 28-33.

Did GATT succeed?

Given its provisional nature and limited field of action, the success of GATT in promoting and securing the liberalisation of much of world trade over 47 years is incontestable. Continual reductions in tariffs alone helped spur very high rates of world trade growth – around 8 per cent a year on average – during the 1950’s and 1960’s. And the momentum of trade liberalisation helped ensure that trade growth consistently outpaced production growth throughout the GATT era. The rush of new members during the Uruguay Round demonstrated that the multilateral trading system, as then represented by GATT, was recognised as an anchor for development and an instrument of economic and trade reform.

The limited achievement of the Tokyo Round, outside the tariff reduction results, was a sign of difficult times to come. GATT’s success in reducing tariffs to such a low level, combined with a series of economic recessions in the 1970’s and early 1980’s, drove governments to devise other forms of protection for sectors facing increased overseas competition. High rates of unemployment and constant factory closures led governments in Europe and North America to seek bilateral market-sharing arrangements with competitors and to embark on a subsidies race to maintain their holds on agricultural trade. Both these changes undermined the credibility and effectiveness of GATT.

Apart from the deterioration in the trade policy environment, it also became apparent by the early 1980’s that the General Agreement was no longer as relevant to the realities of world trade as it had been in the 1940’s. For a start, world trade had become far more complex and important than 40 years before: the globalisation of the world economy was underway, international investment was exploding and trade in services – not covered by the rules of GATT – was of major interest to more and more countries and, at the same time, closely tied to further increases in world merchandise trade. In other respects, the GATT had been found wanting: for instance, with respect to agriculture where loopholes in the multilateral system were heavily exploited – and efforts at liberalisation met with little success – and in the textiles and clothing sector where an exception to the normal disciplines of GATT was negotiated in the form of the Multifibre Arrangement. Even the institutional structure of GATT and its dispute settlement system were giving cause for concern.

Together, these and other factors convinced GATT members that a new effort to reinforce and extend the multilateral system should be attempted. That effort resulted in the Uruguay Round.

Uruguay Round – creating a new system

The seeds of the Uruguay Round were sown in November 1982 at a Ministerial meeting of GATT members in Geneva. Although Ministers intended to launch a major new negotiation, the meeting stalled on the issue of agriculture and was widely regarded as a failure. In fact, the work programme that Ministers agreed formed the basis for what was to become the Uruguay Round negotiating agenda.

Nevertheless, it took four more years of exploring and clarifying issues and painstaking consensus-building, before Ministers met again in September 1986, in Punta del Este, Uruguay, to agree to launch the Uruguay Round. They were able to accept a negotiating agenda which covered virtually every outstanding trade policy issue including the extension of the trading system into several new areas, notably trade in services and intellectual property. It was the biggest negotiating mandate on trade ever agreed and Ministers gave themselves four years to complete it.

By 1988, the negotiations had reached the stage of a “Mid-term Review”. This took the form of a Ministerial Meeting in Montreal, Canada, and led to the elaboration of the negotiating mandate for the second stage of the Round. Ministers agreed a package of early results which included concessions on market access for tropical products – aimed to assist developing countries – as well as a streamlined dispute settlement system and the Trade Policy Review Mechanism which provided for the first comprehensive, systematic and regular reviews of national trade policies and practices of GATT members.

At the Ministerial meeting in Brussels, in December 1990, disagreement on the nature of commitments to future agricultural trade reform led to a decision to extend the round.

By December 1991, a comprehensive draft text of the “Final Act”, containing legal texts fulfilling every part of the Punta del Esta mandate, with the exception of market access results, was on the table in Geneva. For the following two years, the negotiations lurched continuously from impending failure to predictions of imminent success. Several deadlines came and went; farm trade was joined by services, market access, anti-dumping rules and the proposed creation of a new institution, as the major points of conflict; and differences between the United States and European Communities became central to hopes for a final, successful conclusion. It took until 15 December 1993 for every issue to be finally resolved and for negotiations on market access for goods and services to be concluded. On 15 April 1994, the deal was signed by Ministers from most of the 125 participating governments at a meeting in Marrakesh, Morocco.

WTO and GATT

The World Trade Organisation is not a simple extension of GATT. On the contrary, it completely replaces its predecessor and has a very different character. Among the principal differences are the following:

– The GATT was a set of rules, a multilateral agreement, with no institutional foundation, only a small associated secretariat which had its origins in the attempt to establish an International Trade Organisation in the 1940’s. The WTO is a permanent institution with its own secretariat.

– The GATT was applied on a “provisional basis” even if, after more than forty years, governments chose to treat it as a permanent commitment. The WTO commitments are full and permanent.

– The GATT rules applied to trade in merchandise goods. In addition to goods, the WTO covers trade in services and trade-related aspects of intellectual property.

– While GATT was a multilateral instrument, by the 1980’s many new agreements had been added of a plurilateral, and therefore selective, nature. The agreements which constitute the WTO are almost all multilateral and, thus, involve commitments for the entire membership.

– The WTO dispute settlement system is faster, more automatic, and thus much less susceptible to blockages, than the old GATT system. The implementation of WTO dispute findings will also be more easily assured.

The “GATT 1947” will continue to exist until the end of 1995, thereby allowing time for all GATT member countries to accede to the WTO and permitting an overlap of activity in areas like dispute settlement. Moreover, GATT lives on as “GATT 1994”, the amended and updated version of GATT 1947, which is an integral part of the WTO Agreement and which continues to provide the key disciplines affecting international trade in goods.

The structure of the WTO

The structure of the WTO is dominated by its highest authority, the Ministerial Conference, composed of representatives of all WTO members, which is required to meet at least every two years and which can take decisions on all matters under any of the multilateral trade agreements.

The day-to-day work of the WTO, however, falls to a number of subsidiary bodies; principally the General Council, also composed of all WTO members, which is required to report to the Ministerial Conference. As well as conducting its regular work on behalf of the Ministerial Conference, the General Council convenes in two particular forms – as the Dispute Settlement Body, to oversee the dispute settlement procedures and as the Trade Policy Review Body to conduct regular reviews of the trade policies of individual WTO members.

The General Council delegates responsibility to three other major bodies – namely the Councils for Trade in Goods, Trade in Services and Trade-Related Aspects of Intellectual Property Rights. The Council for Goods oversees the implementation and functioning of all the agreements covering trade in goods (Annex 1A of the WTO Agreement), though many such agreements have their own specific overseeing bodies. The latter two Council have responsibility for their respective WTO agreements (Annexes 1B and 1C) and may establish their own subsidiary bodies as necessary.

Three other bodies are established by the Ministerial Conference and report to the General Council. The Committee on Trade and Development is concerned with issues relating to the developing countries and, especially, to the “least -developed” among them. The Committee on Balance of Payments is responsible for consultations between WTO members and countries which take trade-restrictive measures, under Articles XII and XVIII of GATT, in order to cope with balance-of-payments difficulties. Finally, issues relating to WTO’s financing and budget are dealt with by a Committee on Budget, Finance and Administration.

Each of the four plurilateral agreements of the WTO – those on civil aircraft, government procurement, dairy products and bovine meat – establish their own management bodies which are required to report to the General Council.

ACKNOWLEDGEMENT: This information was obtained from WTO information report.

MEMBERSHIP OF THE WORLD TRADE ORGANIZATION

On 13 November 1999 the number of Members of the World Trade Organization reached 135. The following is the list of members and their membership, effective as of the dates indicated:

Observer governments

Note: All observer countries have applied to join the WTO except the Holy See (Vatican) and, for the time being, Ethiopia, Cape Verde, Bhutan and Yemen.

Shaun Bakamoso

Greetings. I'm Shaun Bakamoso, and I'm thrilled to be your guide through the dynamic world of business news in South Africa here at mbendi.co.za. With a passion for staying informed and a keen interest in the ever-evolving landscape of business, I've dedicated myself to providing you with timely, insightful, and comprehensive coverage of the latest developments impacting the South African economy. bakamoso@gmail.com / Instagram