Impact of vietnam s commitments in the context of wto accession on international trade and some recommendations

NATIONAL ECONOMICS UNIVERSITY - SUBJECT: INTERNATIONAL ECONOMICS ESSAY: IMPACT OF VIETNAM’S COMMITMENTS IN THE CONTEXT OF WTO ACCESSION ON INTERNATIONAL TRADE AND SOME RECOMMENDATIONS Student : PHAM THU MAI Class : CH 16P Student ID : CH160181 Hanoi, 12/2008 CHAPTER I: WORLD TRADE ORGANIZATION AND ITS AGREEMENT ON SOME MAIN SECTORS I INTRODUCTION TO THE WORLD TRADE ORGANIZATION Snapshot of the WTO 1.1 Historical Background The WTO, established in 1995, is the principal institution for today's international trade In order to understand this institution, it is necessary to know something about its predecessor, the General Agreement of Trade and Tariffs (GATT) The GATT history is significant because the WTO charter makes it clear that the WTO should be guided by the decisions, procedures and customary practices followed by the contracting parties of GATT 1947 This is particularly important given that customary practices are important for the framing and interpreting of international laws The initiative leading to the establishment of GATT was taken by the United States during the World War II (WWII) together with its allies At that time, there was a need for an institution for trade to help countries recover after the War A group of 23 countries, with a view to foster the postwar reconstruction, negotiated the GATT which would consist of complicated schedules of tariff reductions and some general clauses of obligations related to the tariff obligations The role of the GATT progressively evolved as nations turned to it as the forum in which an increasing number of problems of their trading relationships would be handled The 8th multilateral trade round (or the Uruguay Round) launched in September 1986 in Punta del Este was the most remarkable in the history of GATT as it was the longest round with the participation of 123 countries During the round, the official proposal for a new institution called WTO was tabled by Canada in 1990 The draft charter of the WTO was signed at a ministerial meeting in Marrakech in April 1995 The principal purposes of the WTO, as of the GATT, set out in its Preamble are raising standards of living, ensuring full employment, expanding production and trade, and allowing optimal use of the world's resources Besides, the Preamble states the objective of sustainable development, which is, "seeking both to protect and preserve the environment" More importantly, it identifies the need for effort to ensure that developing countries and least developed countries, can "secure a share in international trade commensurate with the needs of their economic development" In addition, it is due to the fact that GATT problems are solved by the WTO that makes the institution a promising thing countries wish to achieve 1.2 Accession Phases The WTO offers two ways of becoming its member The first, "original membership", including governments which were Contracting Parties of the old GATT ("GATT 1947") is governed by rules The second approach is by "accession," which means by negotiating the terms of membership with governments that are already members Although original members and members by accession are all subject to the same terms, the possibility of joining the WTO by the first route was available only for a limited number of countries Figure below describes briefly all the accession procedures WTO's Accession Procedures Letter of ApplicationEstablishment of Working Party Memorandum on Foreign Trade Regime Approval of the General Review sessions Council Negotiation of the of Working policy changes Party Submission & schedules of Working of commitments Party’s report to General C Vietnam has gone more than all of the way to the WTO membership Vietnam applied to join the WTO in 1995 Though a memorandum of its foreign trade regime was provided to the WTO Working Party in September 1996, it did not provide a copy of its applied tariff schedule until 2003 Members asked questions about Vietnam's trade regime and how it intends to adjust its trade policies and practices in conformity with WTO rules Replies to the questions were received and meetings of the Working Party have now been repeated 10 times with the most recent one held in September 2005 Vietnam commenced its market access negotiation in Novembẹr 2000 and the second round was initiated in May 2003 when the revised offer on goods and services was provided The Working Party, since 10 December 2003, started working on the "elements" of draft working party report which means that the terms of Vietnam's membership is being defined Once finalized this report will be submitted to the General Council, together with schedules of commitments on tariffs and services, and a protocol of accession However, before all these are done, Vietnam had to finalize its bilateral negotiations with as much members as possible The important thing is how Vietnam makes concession and how members value the concession ln order to understand more about this, attention should be paid to principles of the WTO agreements 1.3 Principles of the WTO's Agreements Five principles are of particular importance in understanding both the pre-1994 GATT and the WTO: nondiscrimination, transparency, reciprocity, enforceable commitments, and safety valves Non discrimination has two major components: the most-favored-nation (MFN) rule, and the national treatment (NT) principle Both are embedded in the main WTO rules on goods, services, and intellectual property, but their precise scope and nature differ across these three areas See Appendix for a deeper insight into the MFN rule and NT principle Transparency has a number of important benefits It reduces the pressure on the dispute settlement system, as measures can be discussed in the appropriate WTO body Such discussions can address perceptions by a member that a specific policy violates the WTO Besides, transparency is also helpful in reducing uncertainty related to trade policy The principle of transparency makes it compulsory for governments to publish their trade regulations in a transparent manner Besides, members are also pushed to establish and maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO While the first two principles are more likely to be mentioned, three other remaining principles are no less important Reciprocity is a fundamental element of the negotiating process It reflects both a desire to limit the scope for free-riding that may arise because of the MFN rule and a desirẹ to obtain "payment" for trade liberalization in the form of better access to foreign markets Liberalization commitments and agreements to abide by certain rules of the game have little value if they cannot be enforced This principle (enforceable commitments) is especially of interest for small countries who would have a great stake in a rule-based international system as the system will reduce the likelihood that they will be confronted with bilateral pressure from large trading powers changing policies that are not to their liking A final principle embodied in the WTO is safety valves which mean that in specific circumstances, governments should be able to restrict trade These exceptions are listed in WTO agreements such as national security, health, safety and environment, serious balance of payment difficulties or anti-dumping measures The trading system under World Trade Organization A key rule of the multilateral trade system is that reductions in trade barriers should be applied, on a most-favoured nation basis, to all WTO members This means no WTO member should be discriminated against by another member's trade system However, regional trade agreements (RTAS) are an important exception to this rule Under RTAS, reductions in trade barriers apply only to parties to the agreement This exception is allowed under Article XXIV of the General Agreement on Tariffs and Trade (GATT) for trade in goods, in Article V of the General Agreement on Trade in Services (GATS) for Trade in Services and in the Enabling Clause There are two major types of regional trade agreements under the WTO - customs unions and free trade areas Some countries may also sign temporary agreements, which operate during a transition period, ultimately leading to the creation of a customs union or a free trade area Bilateral and multilateral trade activities can be mutually reinforcing Free trade agreements can accelerate trade liberalization and set higher benchmarks for the multilateral system The knowledge and skills gained through FTA negotiations can be transferred to multilateral trade negotiations within the WTO Compliance with the WTO rules is important to ensuring an agreement is beneficial to all parties in the multilateral system II WTO'S AGREEMENT ON SOME MAIN FIELDS WTO’s agreement on Agriculture 1.1 Brief introduction The Agreement on Agriculture (AoA) is a product of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) negotiations (1986-94), which came into force on January 1995 GATT'S Uruguay Round of trade talks led to the foundation of the World Trade Organization (WTO) Its purpose is to establish a fair and market-oriented agricultural trading system The AoA provides the rules governing international agricultural trade and production It also comprises specific commitments to reduce support and protection in the areas of domestic support, export subsidies and market access, and through the establishment of strengthened and more operationally effective GATT rules and disciplines The Agreement, as well, takes into account non-trade concern, including food security and the need to protect the environment, and provides special and differential treatment for developing countries, including an improvement in the opportunities and terms of access for agricultural products of particular export interest to these Members The AoA permits countries to determine the support measures they want for their agricultural sectors Unlimited spending is allowed for programs that support low income and resource-poor farmers in developing countries as well as for insurance programs, infrastructure provision, and public food stocks (at world prices) in all countries 1.2 Main content The Agreement on Agriculture focuses on three areas: Market Access: liberalizing markets, i.e allowing the free flow of goods, services and investments without obstacles Export Competition: export subsidies that governments can give companies to export goods to other countries Domestic Support: The Amber, Green and Blue boxes - the amount of subsidies that governments can give their farmers By far the most stressed is the Market Access because this represents the real 'money' for big businesses 1.2.1 Market access: Nowadays, the new rule for market access in agricultural products is "tariffs only" Before the Uruguay Round, some agricultural imports were restricted by quotas and other non-tariff measures These have been replaced by tariffs that provide more-orless equivalent levels of protection if the previous policy meant domestic prices were 75% higher than world prices, then the new tariff could be around 75% among WTO members (which can be called "tarriffication") In some cases, the calculated equivalent tariffs were too high to allow any real opportunity for imports So a system of tariff-rate quotas was created to maintain existing import access levels, and to provide minimum access opportunities This means lower tariffs within the quotas, and higher rates for quantities outside the quotas The newly committed tariffs and tariff quotas, covering all agricultural products, are to be reduced by an average 36 per cent in the case of developed countries within the period of over years (1995 -2000) and 24 per cent in the case of developing countries within the period of 10 years (l995-2004) Least-developed countries are not required to reduce their tariffs Imports entering under the tariff-quota (up to 1,000 tons) are charged 10% Imports entering outside the tariff quota are charged 80% Under the Uruguay Round agreement, the 1,000 tons would generally be based on actual imports in the base period or an agreed "minimum access" formula Tariff quotas ale also called "tariffrate quotas" 1.2.2 Domestic support The main complaint about policies that support domestic prices, or subsidize production in some other way, is that they encourage over-production This squeezes out imports or leads to export subsidies and low-priced dumping on world markets The Agriculture on Agreement distinguishes between support programmes that stimulate production directly, and those that are considered to have no direct effect Domestic policies that have a direct effect on production and trade have to be cut back WTO members have calculated how much support of this kind they were providing (using calculations known as "total aggregate measurement of support" or "Total AMS") for the agricultural sector per year in the base years of 1986-1988 Developed countries have agreed to reduce these figures by 20% over six years starting in 1995 Developing countries are making 13% cuts over 10 years Least developed countries not need to make any cuts In WTO terminology, subsidies in general are identified by "boxes"which are given the colours of traffic lights: green (permitted), amber (slow down - i.e be reduced), red (forbidden) In agriculture, things are, as usual, more complicated The Agriculture on Agreement has no red box, although domestic support exceeding the reduction commitment levels in the amber box is prohibited; and there is a blue box for subsidies that are tied to programmes that limit production There are also exemptions for developing countries Measures with minimal impact on trade can be used freely - they are in a "green box" ("green" as in traffic lights) They include government services such as research, disease control, infrastructure and food security They also include payments made directly to fanners that not stimulate production, such as certain forms of direct income support, assistance to help farmers restructure agriculture, and direct payments under environmental and regional assistance programmes Also permitted, are certain direct payments to farmers where the fanners are required to limit production (sometimes called "blue box" measures), certain government assistance programmes to encourage agricultural and rural development in developing countries, and other support on a small scale when compared with the total value of the product or products supported (5% or less in the case of developed countries and 0% or less for developing countries) For agriculture, all domestic support measures considered to distort production and trade (with some exceptions) fall into the "amber box” The total value of these measures must be reduced Various proposals deal with how much further these subsidies should be reduced, and whether limits should be set for specific products rather than having overall "aggregate" limits At the moment, the blue box is a permanent provision of the agreement Some countries want it eliminated because the payments are only partly separated from production, or they are proposing commitments to reduce the use of these subsidies Others say the blue box is an important tool for supporting and reforming agriculture, and for achieving certain "non-trade" objectives, and argue that it should not be restricted as it distorts trade less than other types of support The EU says it is ready to negotiate additional reductions in amber box support so long as the concepts of the blue and green boxes are maintained 1.2.3 Export subsidies The Agriculture Agreement prohibits export subsidies on agricultural products unless the subsidies are specified in a member's lists of commitments Where they are listed, the agreement requires WTO members to cut both the amount of money they spend on export subsidies and the quantities of exports that receive subsidies Taking averages for 1986-90 as the base level, developed countries have agreed to cut the value of export subsidies by 36% over the six years starting in 1995 (24% over 10_years for developing countries) Developed countries have also agreed to reduce the quantities of subsidized exports by 21% over the six years (14% over 10 years for developing countries) Least developed countries not need to make any cuts During the six-year implementation period, developing countries are allowed under certain conditions to use subsidies to reduce the costs of marketing and transporting exports The Agreement on Agriculture provides for some limited flexibility between years in terms of export subsidy reduction commitments and contains provisions aimed at preventing the circumvention of the export subsidy commitments and sets out criteria for food aid donations and the use of export credits Numerial targets for cutting subsidies and protection in agricultural trading Unit: % Numerical targets for cutting subsidies and protection The reductions in agricultural subsidies and protection agreed in the Uruguay Round Only the figures for cutting export subsidies appear in the agreement The other figures were targets used to calculate countries' legally-binding "schedules" of commitments Developed countries Developing countries years: 1995-2000 10 years: 1995-2004 Tariffs Average cut for all agricultural -36% -24% products Minimum cut per product -15% -10% Domestic support Total AMS cuts for sector -20% -13% (base period: 1986-88) Exports Value of subsidies -36% -24% Subsidized quantities -2 % -1 % (base period: 1986-90) Source: Viet Nam and International Economics Organizations, National Committee for International Economics Cooperation, National Politics Publishing House 2002 1.3 Problems of AoA Up to now, however, developing countries find that their interests, in reality, are not be ensured because the AoA still has some unequal issues and some countries don't follow fully the AoA There are two main problems with the AoA: it ignores the realities of global agricultural markets, which behave differently than markets for other goods, it focuses much on governments' impacts on agricultural products that ignores other factors and it fails to acknowledge the widely differing needs of countries at different levels of development The AoA ignores key elements of real world markets for agricultural goods Demand for food is relatively inelastic-to get enough to eat, people will spend what money they have on food, because it is essential for their survival However, you can only eat so much food No matter how low prices fall, people not significantly speed up their consumption The biggest determinants of agricultural commodity prices are the weather and whether harvests were good in certain countries China, a huge producer and consumer of food, can dramatically affect prices of certain crops by entering the market as a buyer (as it did after bad harvests in 1995-96) or, as it has on other occasions, as an exporter These conditions suggest that farmers need support and insurance programs to compensate for the fluctuations in production Moreover, the AoA operates as if only governments affect international trade in agriculture The power of transnational corporations is largely ignored This bias is reinforced by Bush administration efforts to impose greater restrictions on state trading enterprises (STEs), even though a number of transnational corporations have greater capacity than STES to exercise market power in trade distorting ways For example, the markets for many commodities such as coffee, cocoa, and some grains are dominated by a small number of companies Although some countries have privately expressed concern about the difficulties of managing a market dominated by a small number of companies, there has been no formal discussion on how best to regulate market power exercised by these private companies Finally, the AOA ignores real differences among countries by suggesting that all nations can benefit from following varying degrees of the same liberalization policies Worse still, the agreement allows rich countries to have some exceptions to the rules; something developing countries cannot hope to It is perhaps most clear in the case of the United States Although the US Trade Representatives continues to insist on a market-based agricultural trade system at the WTO's Committee on Agriculture, Congress has spent billions of dollars for various kinds of domestic and export support programs in the last some years At the WTO Committee on Agriculture, the United States tries to keep the debate focused on export subsidiesthe support mechanism preferred by the EU WTO’s agreement on Textile and Clothing (ATC) The ATC/WTO Agreement came into effect in 1995 and has been fully complied with until January 2005 It was a 1o-year non-extendable agreement for the gradual integration of the textile and clothing sector into the WTO All members of the WTO were subject to the ATC, regardless of whether or not they were signatories to the MFA, and only members of the WTO were entitled to the benefits of the ATC Under the ATC, WTO members were required to gradually eliminate textile and clothing quotas in a series of four stages during 1995, 1998, 2002 and 2005 to allow 10