Trade Negotiations

Chapter IV unit 3

Dr Alice Mani Jacob

 Trade negotiation

■ is a process in which nations

meet together to discuss the
possibility of trade, with the
goal of reaching a trade
agreement.

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 Trade negotiations

■ are complex interactive

processes engaged in by
countries having competing
objectives
■ Host of interested parties –
domestic , national and
supranational
■ Competing and cooperating

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 Many stakeholders

■ Interest groups
■ Lobbying groups
■ Pressure groups
■ Government
■ Non governmental
organizations (NGO)

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 Regional Trade Agreements
(RTAs)
■ Groupings of countries
■ not necessarily of the same
geographical region
■ Formed with the objective of
reducing barriers to trade
between member countries.

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 ■ Members liberalize trade on a
reciprocal and preferential
basis.
■ As of 1 June 2020, 303 RTAs
were in force.

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 Following WTO convention

■ Regional trade agreement

encompasses
■ Both reciprocal, bilateral free
trade or customs areas and
■ Multicountry (plurilateral)
agreements.

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 Unilateral

■ Technically not an agreement

■ Without any formal agreement
for reciprocation from its
trade partners.
■ Other states are under no
obligation to reciprocate.

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 Trade negotiation –Unilateral

■ Tariff reductions made

independently and without
reciprocal action by other
countries
■ Chile and China in recent
decades, have undertaken
unilateral tariff reductions

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 Advantage

■ a country can reap the

benefits of free trade
immediately
■ Do not have to wait or
persuade
■ Open up – grow faster
■ India‘s after 1991

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 Bilateral Agreements

■ Are agreements that set

rules of trade between two
countries,
■ two blocs or
■ a bloc and a country.
■ ASEAN–India Free Trade
Area(AIFTA)

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 Regional Preferential Trade
Agreements

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 ASEAN

■ Indonesia,
■ Malaysia,
■ Philippines,
■ Singapore
■ Thailand
■ Brunei,
■ Cambodia,
■ Myanmar
■ Laos, Vietnam. Not WTO members

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 Trading Bloc

■ Apply a common external

tariff

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 Free-trade area

■ Each member state continues

to apply different tariffs,
quotas, etc. vis-a-vis non-
members
■ retains independence in
determining their tariffs with
nonmembers

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 INDIA FTAs

■ FTAs Signed / In Effect –

■ India-Sri Lanka Free Trade
Agreement
■ - ASEAN-India Comprehensive
Economic Cooperation Agreement
■ –Asia-Pacific Trade Agreement –
■ India-Afghanistan Preferential
Trading Agreement
■ – India-Bhutan Trade Agreement
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 ■ - India-Chile Preferential Trading
Agreement
■ - India-Korea Comprehensive
Economic Partnership Agreement
■ - India-MERCOSUR Preferential
Trade Agreement
■ - India-Singapore Comprehensive
Economic Cooperation Agreement
■ -

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 Mercosur

■ Brazil,
■ Argentina,
■ Uruguay and
■ Paraguay,

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 ■ Indo-Nepal Treaty of Trade
■ - Japan-India Comprehensive
Economic Partnership
Agreement
■ - Malaysia-India
Comprehensive Economic
Cooperation Agreement
■ - South Asian Free Trade Area

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 Agreements Signed

■ - Bay of Bengal Initiative for

Multi-Sectoral Technical and
Economic Cooperation
(BIMSTEC) Free Trade Area
■ - India-Gulf Cooperation
Council Free Trade Area.

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 How?

■ Eliminate all tariff and quota

barriers on trade with the
objective of increasing exchange
of goods with each other.
■ The trade among the member
states flows tariff free
■ But the member states maintain
their own distinct external tariff
with respect to imports from the
rest of the world.

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 Free trade agreement

■ A free trade agreement (FTA)

is a treaty between two or
more countries to facilitate
trade and eliminate trade
barriers.
■ It aims at eliminating tariffs
completely from day one or
over a certain number of
years.

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 India

■ India has bilateral agreements

with the following countries and
blocs
■ Afghanistan
■ ASEAN (Brunei, Cambodia,
Indonesia, Laos, Malaysia,
Myanmar, Philippines,
Singapore, Thailand, Vietnam)
■ Bhutan
■ Chile

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 ■ European Union (negotiations
stalled)
■ EFTA (Iceland, Lichtenstein,
Norway, Switzerland) (negotiations
stalled)
■ Japan
■ Malaysia
■ MERCOSUR (Argentina, Brazil,
Paraguay, Uruguay and Venezuela)

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 Customs Union

■ A customs union is a free

trade area with a common
external tariff.
■ The EU is a Customs Union;

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 Common Markets

■ In addition to the common

tariffs, also allow free
movement of resources such
as capital and labour between
member countries
■ Harmonize some institutional
arrangements and commercial
and financial laws

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 The General Agreement on
Tariffs and Trade (GATT)
■ Provided the rules for much of
world trade for from 1948 to
1994
■ Only multilateral instrument
governing international trade
or a provisional agreement
■ Not binding

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 ‗Codes‘

■ Because they were not

acknowledged by the full GATT
membership.

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 Uruguay Round (1986-94)

■ The eighth
■ the last and
■ most consequential of all
rounds and culminated in the
birth of WTO

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 Economic and Monetary Union

■ Share a common currency and

macroeconomic policies.

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 Monetary union is a deeper
form of integration
■ The single European currency, the
euro, was introduced in 1999 and
came into common circulation in
January 2002
■ No country has yet left the Euro Area
■ There are nineteen member nations
■ Of the 28 EU countries (the UK
leaves), 9 are not part of the single
currency including Denmark,
Hungary, the Czech Republic and
Poland

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 ■ The WTO‘s rules – the
agreements – are the result of
negotiations between the
members.
■ The Uruguay Round created new
rules for dealing with trade in
services and intellectual
property and new procedures for
dispute settlement.

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 WTO

■ The biggest reform of the

world‘s trading system
■A single institutional
framework
■ Encompassing the GATT,
as modified by the Uruguay
round.

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 Objective

■ ―The principal objective of the

WTO is to facilitate the flow of
international trade smoothly,
freely, fairly and predictably.
■ Primary purpose is to open trade
for the benefit of all
■ Global rules of trade provide
assurance of market opening and
stability in demand .

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 The WTO has six key objectives:

■ To set and enforce rules for

international trade,
■ To provide a forum for
negotiating and monitoring
further trade liberalization,
■ To resolve trade disputes,
■ To increase the transparency
of decision-making processes,

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 ■ To cooperate with other major
international economic
institutions involved in global
economic management, and
■ To help developing countries
benefit fully from the global
trading system.

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 ■ Only global international
organization dealing with the
rules of trade between nations
■ Decisions taken by consensus
among all members and are
ratified by members‘
parliaments
■ 98% of commerce takes place
under the WTO rulebook.

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 Disputes

■ Trade frictions are channelled

into the WTO‘s dispute
settlement process,
■ where the focus is on
interpreting agreements and
commitments and
■ how to ensure that members‘
trade policies conform with
them.

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 Agreements are legal
foundations for global trade.
■ Contracts, guaranteeing WTO
members important trade
rights.
■ Bind governments to keep
their trade policies
transparent and predictable
which is to everybody‘s
benefit.

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 Non- discriminatory trading
system
■ WTO members operate a non-
discriminatory trading system
that spells out their rights and
their obligations.

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 Mutual

■ Each member receives

guarantees that its exports
will be treated fairly and
consistently in other
members‘ markets.
■ Each promises to do the same
for imports into its own
market

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 GATS

■ General Agreement on Trade

in Services (GATS)
■ Individual commitments
under the GATS stating which
of their service sectors they
are willing to open to foreign
competition

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 Services

■ Banks, insurance firms,

telecommunications
companies, tour operators,
hotel chains and transport
companies looking to do
business abroad enjoy the
same principles of more open
trade that originally only
applied to trade in goods.

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 Intellectual property

■ The WTO‘s Intellectual Property

Agreement contains rules for trade
in ideas and creativity.
■ The rules state how copyrights,
patents, trademarks, geographical
names used to identify products,
industrial designs and undisclosed
information such as trade secrets –
―intellectual property‖ – should be
protected when trade is involved.

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 Note

■ The General Agreement still

exists as the WTO‘s umbrella
treaty for trade in goods,
updated as a result of the
Uruguay Round negotiations.

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 ■ Secretariat located in geneva
■ Top level decision-making body
is the ministerial conference
■ The general council
■ The goods council, services
council and intellectual property
(TRIPS) council
■ Numerous specialized
committees

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 Objectives of the WTO

■ ―raising standards of living,

■ ensuring full employment and

■ a large and steadily growing volume of

real income and effective demand,

■ and expanding the production of and

trade in goods and services‖

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 WTO does its functions by

■ act as a forum for trade negotiations

among member governments
■ administering trade agreements
■ reviewing national trade policies
■ assisting developing countries in
trade policy issues, through
technical assistance and training
programmes and
■ cooperating with other international
organizations

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 What governments have agreed to
put into practice

■ Lower trade barriers

■ Trimming red tape in customs
and trade
■ Justifications for restricting
imports on health, safety and
environmental grounds that
are rational, not arbitrary

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 What governments have agreed to
put into practice

■ Disciplines on how they can

react when imports increase
sharply or the prices of imports
tumble
■ Limits on harmful agricultural
subsidies
■ Access to services markets
■ Intellectual property protection.

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 The Guiding Principles of WTO

■ Trade without discrimination

■ ‗Most Favoured Nation‘ (MFN)
■ All WTO members are MFN for
trade
■ If one country grants a special
favor to one nation –it will have
to give that special favour to all
member-nations of WTO.

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 ■ Permitted exception
(Application question )
■ Formation of common
markets / free trade
agreement / regional trading
agreements

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 2
■ Special market access on special
concessional terms to certain
goods from a specific country or
group of developing countries.
■ Eg Generalised System of
Preferences (GSP)

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 3
■ Can initiate actions against
dumping and trade distortion
by imposing antidumping
duties or countervailing duties
on goods traded.
■ Raise barriers against products
that are considered to be
traded unfairly

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 The National Treatment
Principle (NTP)
■ GATT Article III
■ Treatment not less favourable
than that which is accorded to
like domestic products
■ Once it has crossed borders

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 Example

■ Internal taxes
■ Internal laws
■ Transportation
■ Marketing
■ Product visibility
■ Any other aspect

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 Freer trade

■ Lowering trade barriers

■ Cover non-tariff barriers
■ Cover services
■ Include IPRs
■ Progressive liberalization

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 Note

■ Developing countries given

longer time to conform to
their obligations.

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 Predictability

■ Binding‘ tariff rates

■ Discouraging the use of quotas
■ Market-opening commitments
and other measures to ensure
transparency

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 QRs

■ Principle of general
prohibition of Quantitative
Restrictions
■ With tariffs , still possible to
increase exports as long as
one is price competitive
enough to overcome the
barriers created by the tariff.

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 QUOTA

■ Impossible to export in excess

of the quota no matter how
price competitive foreign
products may be

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 Only tariffs

■ Progressively reduce them

through negotiations on a
■ ‗on a reciprocal and mutually
advantageous‘ basis.
■ Market Access by converting all
non- tariff barriers into tariffs
■ Special privileges less developed
countries to phase out the
transition period

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 Transparency in Decision
Making
■ Transparent and verifiable
policy decisions
■ Trade or of trade related rules
have to be invariably and
without delay be notified to all
the trading partners

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 Special privileges less
developed countries
■ ‗Special and differential
treatment ‗
■ Greater flexibility
■ Special privileges and
■ Permission to phase out the
transition period

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 Dispute settlement mechanism

■ Stage-by-stage procedure
■ The possibility of a judgment
by a panel of experts
■ And the opportunity to appeal
the ruling on legal grounds.

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 Overview of the WTO
agreements cover
■ Goods, Services, Intellectual
property ,and The permitted
exceptions.
■ ‗Rules-based‘, a system based
on rules which are agreements

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 Agreement on Agriculture,1995

■ Market access,
■ Domestic support and
■ Export subsidies

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 Agreement on Textiles and
Clothing
■ Terminated on January 1,
2005. ( Ten year expiry)
■ Now governed by the general
rules and disciplines embodied
in the multilateral trading
system

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 Agreement on Technical
Barriers to Trade (TBT)

■ Excessive standards or misuse

of standards act as trade
barriers
■ Transparency and
harmonization with
international standards

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 Agreement on Trade-Related
Investment Measures (TRIMs)
■ Stop restrictions inconsistent
with the provisions of the
principle of national
treatment
■ E.g.. Local content
requirements

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 Anti-Dumping Agreement

■ Tighten and codify disciplines

■ Dumping margins
■ Dumping investigations
■ Prevent anti-dumping
measures from being abused or
misused

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 Customs Valuation Agreement

■ Harmonize customs valuation

systems
■ Eliminating arbitrary
valuation systems

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 Agreement on Pre-shipment
Inspection (PSI)
■ To secure transparency of pre-
shipment inspection

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 Rules of origin

■ Laws, regulations and

administrative procedures,
which determine a product's
country of origin.

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 Agreement on Import Licensing

■ Relates to simplification of
administrative procedures and
to ensure their fair operation

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 Agreement on Subsidies and
Countervailing Measures

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 Agreement on Safeguards

■ Authorizes members to impose

significant import restrictions
■ Designed to remedy or prevent
serious injury to domestic
industries
■ That is caused by an increase
in imports.

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 General Agreement on Trade in
Services (GATS)

■ Stipulates most-favored-nation
treatment and national
treatment for intellectual
properties
■ Maintain high levels of
intellectual property
protection
■ Administer a system of
enforcement of such rights.

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 ■ Understanding on Rules and
Procedures Governing the
Settlement of Disputes (DSU)

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 Trade Policy Review Mechanism
(TPRM)
■ Trade Policy Review Body
(TPRB).
■ Seeks to increase awareness of
the extent and effects of trade-
distorting policies
■ Through annual notification
requirements and
■ Through a policy-review
mechanism.

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 Mandatory

■ Notices of all changes in

members‘ trade and trade-
related policies must be
published and made accessible
to their trading partners.

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 Plurilateral Trade Agreements

■ What are these?

■ The Plurilateral trade
agreements involve several
countries with a common
interest but do not involve all
WTO countries
■ Come from the failure to find
agreement among the entire
WTO contracting parties

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 Plurilateral Trade Agreements

■ WTO member countries would

be given the choice to agree to
new rules on a voluntary basis.
■ multilateral, where all WTO
members are party to the
agreement.
■ Eg. The Agreement on
Government Procurement

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 • A special type of multilateral
treaty. Between a limited
number of states with a
particular interest in the subject
of the treaty.
• The primary difference between
a plurilateral treaty and other
multilateral treaties is that the
availability of reservations is
more limited under a plurilateral
treaty.

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 ■ Agreement on Trade in Civil
Aircraft:
■ Agreement on Government
Procurement

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 Agreements

■ Not static
■ Are renegotiated from time to
time and new agreements
evolve

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 Doha Development Agenda

■ The Doha Round- launched in

2001 the latest round of
trade negotiations
■ aim is to achieve major
reform of the international
trading system
■ through the introduction of
lower trade barriers and
revised trade rules.

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 Doha- Issues for discussion

■ Multilateral environmental
agreements
■ Trade barriers on
environmental goods &
services
■ Fisheries subsidies may harm
environment –fish stock
depletion

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 WTO-major issues

■ Very slow progress of

multilateral negotiations
■ Regionalism a plausible
alternative
■ Complex network of regional
agreements introduces
uncertainties

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 Developing
countries are
dissatisfied

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 Why?

■ Poor bargaining power

■ Erosion of preferences
■ Lack of human as well as
physical capital
■ Poor infrastructure
■ Inadequate institutions
■ Political instabilities etc.

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 ■ The north-south divide
■ Face exceptionally high tariffs
on selected products
■ Tariff peaks on textiles,
clothing, and fish and fish
products
■ Tariff escalation‘

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 ■ Liberalizing trade in
agriculture, textiles, and
apparel, and in many other
areas of international
commerce has been negligible.
■ Doha development round
definitive success is doubtful

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 Developing countries are
dissatisfied

■ Real expansion of trade in the

three key areas of agriculture,
textiles and services has been
dismal
■ Protectionism and lack of
willingness among developed
countries
■ Forced to seek regional
alternatives

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 Escalated tariffs

■ The bias in the structure of

many developing countries'
exports towards unprocessed
products

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 ■ India banned 59 Chinese apps,
the country‘s embassy in New
Delhi said the move violates
international laws governing
global trade and e-commerce.

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 Erosion of preferences

■ An issue that worries developing

countries is the erosion of
preferences — special tariff
concessions granted by developed
countries on imports from certain
developing countries become less
meaningful if the normal tariff rates
are cut because the difference
between the normal and preferential
rates is reduced.

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 ■ Developing countries have
placed on the Doha Agenda a
number of problems they face
in implementing the present
agreements.

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 Developing countries

■ still face exceptionally high

tariffs on selected products
(―tariff peaks‖) in important
markets that continue to
obstruct their important
exports.
■ Examples include tariff peaks
on textiles, clothing, and fish
and fish products.

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