The Development of Free Trade as a Goal

• General Agreement on Tariffs and Trade (GATT) began in 1947 with 23 nations

• Multilateral trade agreements, negotiated in rounds (usually 3-5 years)—eighth round was the Uruguay Round (1986-1994) and included 123 nations

• Purpose of GATT to reduce trade barriers• Traditionally GATT (and trade in general) has

focused on Goods

Early developments

• Early plan for an ITO (international trade organization as part of UN) blocked by US

• 23 nations decided to start negotiations anyway—first GATT– A trade agreement and then an organization

• 8 rounds: first 6 rounds mostly dealt with tariff reduction; Tokyo round began to look at other barriers to trade; Uruguay round most effective—created GATS and WTO

GATT Principles

• Market principle: free market should rule• Reciprocity principle: benefits on both sides• MFN: non-discrimination (leads to problem of free

riders)—there are a few limited exceptions• National treatment: foreign entities treated same as

domestic entities• Transparency principle: tariffs and prices available to all• Consultation principle: open discussions for conflict

resolution• Dispute settlement: arbitration

GATT principles that provide “an out”

• Legitimacy of domestic regulation principle

• Orderly adjustment principle– Mostly for lesser developed nations

World Trade Organization

• Established 1/1/95—legal and institutional foundation of multilateral trading system

• Embodies results of Uruguay Round and successor to GATT– Replaces the organizational part of the GATT; the

GATT agreement still exists

• Headquartered in Geneva• 153 nations are members (EU counts as one;

Tonga joined July 2007)

DOHA Round (current round)

• Began in 2001

• Suspended and then reinstated, broke down in 2008; efforts still ongoing

• Issues of concern– Agriculture– Challenges for developing nations when it

comes to participating in trade

WTO Structure• Ministerial conference—every 2 years• General Council (also meets as dispute settlement

body and trade policy review body)—made up of ambassadors and heads of delegations

• Councils for Trade in Goods, Trade in Services, and trade-related aspects of intellectual property

• Specialized committees and working groups• Secretariat: located in Geneva, headed by director

general and four deputies

WTO voting

• One country, one vote• Interpretation of trade agreements, ¾

majority required• Waiver of an obligation on a particular

country, ¾ majority• Amend provisions of the agreements, all

members in most cases• Admit new member, 2/3 majority

WTO functions

• Administer trade agreements• Forum for trade negotiations• Settle trade dispute• Review national trade policies• Assist developing nations in trade policy issues

through technical assistance and training• Cooperate with other international organizations

WTO dispute settlement• The whole process can take 1 year and 3 months if

there is an appeal• Preliminary step: preparation of materials by both

sides• First stage: consultation (60 days); countries talk

to one another first to try to settle dispute

More on WTO dispute process

• Second stage: panel (up to 45 days to be appointed and 6 months to meet)– First hearing; the cases are made– Rebuttal at second meeting (may include expert witnesses)– First draft report to the two sides– Interim report– Review– Final report to the two sides and then to WTO—determine how to

conform with WTO rules– Report becomes a ruling by the Dispute Settlement Body

• Appeal to the Appellate Body– Compensation or trade sanctions for the loser

General Agreement on Trade in Services

• Framework agreement (29 articles and 8 annexes) and schedules of specific commitments and lists of exemptions to MFN treatment– Telecom one of the annexes

• Broadly follows tradition of the GATT by emphasizing nondiscrimination

More on GATS

• Covers four modes of international delivery of services– Cross border (telephone calls for example)– Consumption abroad (tourism)– Commercial presence (through bank or

subsidiary)– Presence of natural persons (entry and

temporary stay of individuals in order to provide a service)

More on GATS

• Allows exemptions to MFN (time-bound)

• Adopts a “positive list” approach—only the industries and activities scheduled in the commitments are subject to GATS obligations

• Obligations include transparency, market access, national treatment

Telecom Annex • Section 1 objective• Section 2 scope—does not apply to broadcast or cable• Section 3 definitions—telecommunications means telephone,

telegraphy, telex, and data transmission involved in real time transmission of customer provided information with no change in form or content

• Section 4 transparency• Section 5 access to and use of public telecom (includes

safeguard language)• Section 6 technical cooperation with developing nations• Section 7 relations to international organizations and

agreements

Section 5 of Telecom Annex

• Access to and use of Public Telecommunications– 5.1: access on reasonable and non-

discriminatory manner– 5.2: pricing should be cost-based– 5.3 allow purchase of leased lines and

connection to the PSTN– 5.4: allow use of public transport networks to

move information within and across borders

More on section 5

– 5.5: may take measures to ensure security and confidentiality of messages, but cannot apply such measures in any way that would impede trade in services

– 5.6: no conditions imposed other than to safeguard the network and to assure network use only by those parties permitted by trade commitment to do so

– 5.7: pursuant to 5.6 above, can restrict resale, require use of specific protocols, require interoperability, require type approval of CPE, restrict interconnection of private lines, require notification and licensing

– 5.8: developing nation may place conditions on access in order to strengthen its domestic infrastructure and increase its participation in international trade in services

Progress

• By end of Uruguay Round (April 1994) only concessions in value-added services

• Creation of Negotiating Group on Basic Telecommunications (NGBT), deadline of April 1996

• Creation of Group on Basic Telecommunications (GBT), deadline of February 1997—69 WTO members tabled commitments—formally binding on February 6, 1998

Areas covered by the negotiations

• Voice telephony• Packet-switched data• Circuit-switched data• Telex and telegraph and facsimile• Private leased circuit services• Other

– Analog and digital cellular– Mobile data and Paging– PCS– VSAT services– Teleconferencing– Gateway earthstation services

GBT Reference Paper• Competitive safeguards

– Prevent anti-competitive activities like cross subsidization, using information from competitors for anti-competitive means, withholding technical information from other service suppliers

• Interconnection– To be provided under non-discriminatory terms, in a

timely fashion, on reasonable terms, upon request, at various points in the network

– Procedures for negotiations should be available, interconnection arrangements should be transparent, dispute resolution by independent body.

More on the GBT Reference Paper Provisions

• Universal service obligations– Not anti-competitive per se, but should be competitively

neutral and not burdensome

• Transparency of licensing criteria– Licensing criteria and terms of individual licenses, should

be made public; reasons for denial should be provided

• Independent regulator• Allocation and use of scarce resources

– Should be carried out in an objective, timely, non-discriminatory manner.