PRINCIPLES OF WTO

1. Trade without discrimination

Nondiscrimination has two major components: the most-favored-nation (MFN)

rule, and the national treatment principle. Both are embedded in the main WTO rules on
goods, services, and intellectual property, but their precise scope and nature differ.

a) Most-favored-nation (MFN): treating other people equally

The MFN rule requires that a product made in one member country be treated no less
favorably than a “like” good that originates in any other country. The benchmark for
MFN is the best treatment offered to any country, including countries that are not
members of the GATT.
For example: if the best treatment granted a trading partner supplying a specific
product is a 5 percent tariff, this rate must be applied immediately and unconditionally to
imports of this good originating in all WTO members.

MFN helps:
- Enforce multilateral rules by raising the costs to a country of defecting from the
trade regime to which it committed itself in an earlier multilateral trade negotiation.
- Reduce negotiating costs: once a negotiation has been concluded with a country, the
results extend to all. Other countries do not need to negotiate to obtain similar treatment;
instead, negotiations can be limited to principal suppliers.

The MFN rule applies unconditionally. Although exceptions are made for the
formation of free trade areas or customs unions and for preferential treatment of
developing countries, MFN is a basic pillar of the WTO. MFN also provides smaller
countries with a guarantee that larger countries will not exploit their market power by
raising tariffs against them in periods when times are bad and domestic industries are
clamoring for protection or, alternatively, give specific countries preferential treatment
for foreign policy reasons.

b) National treatment: Treating foreigners and locals equally

National treatment requires that foreign goods, once they have satisfied whatever
border measures are applied, be treated no less favorably, in terms of internal (indirect)
taxation than like or directly competitive domestically produced goods. That is, goods of
foreign origin circulating in the country must be subject to taxes, charges, and regulations
that are “no less favorable” than those that apply to similar goods of domestic origin.

For example, if country A provides special tax breaks for its fledgling
pharmaceutical industry, all pharmaceutical companies that have operations in country
A will be entitled to the tax breaks, regardless of whether the company is domestic or
foreign.

National treatment ensures that liberalization commitments are not offset through
the imposition of domestic taxes and similar measures. The requirement that foreign
products be treated no less favorably than competing domestically produced products
gives foreign suppliers greater certainty regarding the regulatory environment in which
they must operate. The national treatment principle has often been invoked in dispute
settlement cases brought to the GATT. It is a very wide-ranging rule: the obligation
applies whether or not a specific tariff commitment was made, and it covers taxes and
other policies, which must be applied in a nondiscriminatory fashion to like domestic and
foreign products. It is also irrelevant whether a policy hurts an exporter. What matters is
the existence of discrimination, not its effects.

2. Freer trade: gradually, through negotiation

Lowering trade barriers is one of the most obvious means of encouraging trade.
The barriers concerned include customs duties (or tariffs) and measures such as import
bans or quotas that restrict quantities selectively. From time to time other issues such as
red tape and exchange rate policies have also been discussed.

For example: After joining WTO, 100%-foreign investment supermarkets are not
allowed to built in Vietnam, they were not be allowed in the past.

As a result of the negotiations in rounds, by the mid-1990s industrial countries’

tariff rates on industrial goods had fallen steadily to less than 4%.

Opening markets can be beneficial, but it also requires adjustment. The WTO
agreements allow countries to introduce changes gradually, through “progressive
liberalization”. Developing countries are usually given longer to fulfill their obligations.

3. Predictability: through binding and transparency

Through binding
While quotas are generally outlawed, tariffs or customs duties are legal in the WTO.
Members have also undertaken an initial set of commitments covering national
regulations affecting various services activities. These commitments are, like those for
tariffs, contained in binding national schedules. These schedules establish “ceiling
bindings”: the member concerned cannot raise tariffs above bound levels without
negotiating compensation with the principal suppliers of the products concerned. The
MFN rule then ensures that such compensation—usually, reductions in other tariffs—
extends to all WTO members, raising the cost of reneging.
For example, in agriculture, 100% of products now have bound tariffs. Tariff
reductions will result in a 40 per cent cut in industrial countries' tariffs in industrial
products from an average of 6.3 per cent to 3.8 per cent. The percentage of bound
product lines increases nearly 100 per cent for developed nations and countries in
transition and to 73 per cent for developing countries.
 A country can change its bindings, but only after negotiating with its trading partners,
which could mean compensating them for loss of trade.

Through transparency:

Provisions on notification requirements and the Trade Policy Review Mechanism

are set out in the WTO Agreement and its Annexes, with the objective of guaranteeing
the fullest transparency possible in the trade policies of its Members in goods, services
and the protection of intellectual property rights

A more open WTO would allow the public to see how the organization works to
secure the benefits of trade.

 “Greater public scrutiny of WTO dispute settlement proceedings would confirm

that the procedures for resolving trade disputes are honest, fair and impartial,”
according to James Bacchus, former chairman of the WTO appellate body and
congressman from Florida.

In the Doha Round of negotiations, the United States is proposing to clarify and
improve the understanding of WTO rules and procedures that govern the settlement of
disputes by:

 Opening Hearings: The public would be able to observe all substantive panel,
appellate body and major council meetings of the WTO.
 Timely Access to Submissions: All briefs and hearing remarks would be made
public, except those sections dealing with confidential or proprietary information.
 Timely Access to Final Panel Reports: Final panel reports would be made
available to WTO members and the public once reports are distributed to the
contesting parties.
 Amicus Curiae Submissions: Guidelines to establish procedures for handling
amicus submissions would be developed.
  Openness to Stakeholders: WTO members would consult and inter-act more
with stakeholders, such as the private sector, civic society groups and other
international organizations.

4. Promoting fair competition

The WTO says that laid down the basis on which governments could impose
compensating duties on two forms of "unfair" competition: dumping and subsidies. 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 another will do the same thing for trade in services.

The WTO is sometimes described as a “free trade” institution, but that is not entirely
accurate. The system does allow tariffs and, in limited circumstances, other forms of
protection. More accurately, it is a system of rules dedicated to open, fair and undistorted
competition.

Many of the other WTO agreements aim to support fair competition: in agriculture,
intellectual property, services, for example. The agreement on government procurement
extends competition rules to purchases by thousands of government entities in many
countries.

5. Encouraging development and economic reform

WTO intended to favor developing countries, in particular those encouraging
industrial countries to assist trade of developing nations. Developing countries are given
transition periods to adjust to the more difficult WTO provisions. Least-developed
countries are given even more flexibility and benefit from accelerated implementation of
market access concessions for their goods.

For example: In Aids for Trade Program of WTO, Vietnam has ranged as the
forth in one of 20 developing countries receiving the most amount of money.
 More recently, developed countries have started to allow duty-free and quota-free
import for almost all products from least-developed countries.