Introduction:
The WTO is run by its member governments. All WTO members may participate in all Councils, Committees, etc, except Appellate Body, Dispute Settlement Panels, Textile Monitoring Body, and Plurilateral Committees. All major decisions in WTO are made by the membership as a whole, either by ministers (who meet every two years) or by officials (who meet regularly in Geneva). Decisions are normally taken by consensus. In this respect, the WTO is not like some other international organizations such as the World Bank and International Monetary Fund. In the WTO, power is not delegated to a board of directors, and the bureaucracy has no influence over individual countries’ policies (although some analytical comments are made in the regular trade policy reviews). When WTO rules impose disciplines on countries’ policies, that is the
outcome of negotiations among two members. The rules are enforced by the member themselves under agreed procedures that they negotiated. Sometimes enforcement includes the threat of trade sanctions. But those sanctions are imposed by member countries, not by the organization.
Highest Authority (The Ministerial Conference): WTO belongs to its members. The member countries make their decisions through various councils and committees, whose membership consists of all WTO members, topmost is the ministerial conference which has to meet at least once every two years. Ministers
of member countries take part in this conference.
Ministers met for the first time in Singapore in December 1996, in Switzerland in 1998, in Seattle of USA in December 1999 and in Doha of Qatar in 2001. The ministerial Conference can take decisions on all matters under any of the multilateral trade agreements.
Second Level: General Council: Day to day work in between the Ministerial Conference is handled by three bodies:
(1) The General Council
(2) The Dispute Settlement Body
(3) The Trade Policy Review Body
All three are in fact the same-the Agreement Establishing the WTO states they are all the General Council, although they meet under different terms of reference.Again, all three consist of all WTO members. They report to the ministerial conference. The General Council acts on behalf of the Ministerial Conference on
all WTO affairs. It meets as the Dispute Settlement Body and the Trade Policy Review Body to oversee procedures for settling disputes between members and to analyze members’ trade policies.
Third Level (Councils for each broad area of trade and more): Three more councils, each handling a different area of trade, report to the General Council:
• The Council for Trade in Goods(Goods council)
• The Council for Trade in Services(Services Council)
• The Council for Trade-Related Aspects of Intellectual Property (TRIPS
Council)
As their name indicates, the three are responsible for the workings of the WTO agreements dealing with their respective areas of trade. These three also have subsidiary bodies, which cover issues such as trade and development, the environment, regional trading arrangements, and administrative issues.
Fourth Level (Down to the nitty-gritty): Each of the higher level councils has subsidiary bodies. The Goods Council has 11 committees dealing with specific subjects (such as agriculture, market access, subsidies, anti-dumping measures and so on). Again these consists of all member countries. Also reporting to the Goods
Council is the Textiles Monitoring Body, which consists of a chairman and 10 members acting in their personal capacities, and groups dealing with notifications (governments informing the WTO about current and new policies or measures) and state trading enterprises. The Services Council has seen some changes in its subsidiary bodies. The completion of the basic telecommunications negotiations in February 1997 meant
the end of negotiating group, at least until the new services negotiating round starts in 2000. The same could happen to the financial services negotiating group. In theory, the negotiating group in maritime services still exists, but with the talks suspended until 2000, the group is unlikely to be active. Other subsidiaries deal
with professional services, GATS rules and specific commitments. At the General Council level, the Dispute Settlement Body also has two subsidiaries: the dispute settlement “panels” of experts appointed to adjudicate on unresolved disputes, and the Appellate Body that deals with appeals.
The WTO Secretariat:
The WTO Secretariat is based in Geneva and is headed by the Director General who is presently Mike Moore of New Zealand. Since decisions are taken by Members only, the Secretariat has no decision-making power. The main duties of the WTO Secretariat are to supply technical and professional support for the
various councils and committees, to provide technical assistance for developing countries, to monitor and analyze development in world trade, to provide information to the public and the media and to organize the ministerial conferences. These duties are effected by the Secretariat professional staff of 629 representing about 60 nationalities. The WTO Secretariat can be described as being organized into divisions with
functional (i.e. Accession division, Agriculture and commodities division, Economic research and analysis division, Intellectual property and investment division, Legal affairs division, Market access division, Ministerial sessions division, Rules division, Statistical division, Secretariat working group on the integrated framework of LDC issues, Technical cooperation division, Textiles division, Trade and environmental division, Trade and finance division, Trade in services division, Trade policies review division and Training division),
information and liaison (i.e. Information and media relations division and External relations division) and support roles (i.e. Administrative and general services division, Informatics division, Language, service and documentation division). The divisions are normally headed by a Director who reports to a Deputy Director
General or directly to the Director General. Further, there is the WTO appellate body and its secretariat for hearing appeals and to act as arbiters during disputes. The WTO financial budget is mostly derived from contributions of WTO members. These are established according to a formula based on their share of international trade. The remainder of the budget is financed through miscellaneous income (i.e. the rental fee and sales of WTO print and electronic publications). The WTO manages a number of trust funds, which have been contributed by Members. These are used in support of special activities for technical cooperation and training meant to enable least-developed and developing countries to make better use of WTO and draw greater benefit from the multilateral trading system. The total budget for the WTO in 2011 was $ 290 million(196 million Swiss francs ) .
AN OVERVIEW OF THE AGREEMENTS AND MECHANISMS IN WTO
At the heart of the WTO, there are a number of multilateral agreements which are negotiated and signed by the bulk of the world’s trading nations. These documents provide the legal ground-rules for international commerce. They are essentially contracts; binding governments to keep their trade policies with-in
agreed limits. An overview table of the basic structure of WTO is given below:
Major Agreements in WTO:
1 General Agreement on Trade and Tariffs (GATT): GATT is a multilateral agreement on trade in goods. Before 1995, GATT itself was an international agency containing the main set of rules for international trade.
The then GATT had contracting parties and it used to deal with goods. Since the establishment of WTO, GATT has become one of the agreements dealing with trade in goods. This agreement is concerned with associate agreements, understandings, and decisions made for the biggest portion of constraints and allow
for most of the exclusions in trade policy formulation by members. GATT is led by the principles of WTO under which members must design and implement their trade policies to be non-discriminatory. Members must observe the national treatment principle and when granting protection, use tariffs, which are reasonable
and bound.
Under GATT, members deal with:
• Agriculture
• Health regulations for farm products
• Textiles and clothing
• Product standards
• Investment measures
• Antidumping measures
• Customs valuation methods
• Pre-shipment inspection
• Rates of origin
• Import licensing
• Subsidies and counter measures
• Safeguards
The GATT requires governments to make their trade policies transparent. And they share a common three-part structure:
(a) Tariffs: More Bindings and Closer to Zero The bulkiest results of Uruguay Round are 22,500 pages listing individual countries’ commitments on specific categories of goods and services. These include commitments to cut and bind their customs duty rates on imports of goods and in some cases, tariffs are being cut to zero-with zero rates also committed in the 1997 on information technology products. There is also a
significant increase in the number of “bound” tariffs-duty rates that are committed in the WTO and are difficult to raise. The proportion of imports that have bound tariff rates is raised by this agreement to 99 percent for developed countries, while for developing countries it has jumped to 73 percent (from 21 percent before the Uruguay Round). Economies in transition have also increased their bindings to 98 percent of total imports. These high proportions of imports with tariffs that are bound help traders and investors gain more confidence about those markets stability and security.
(b) Agriculture: Fairer Markets for Farmers: The original GATT did apply to agricultural trade, but it contained loopholes. For example, it allowed countries to use some non-tariff measures such as import quotas, and to subsidize. Agricultural trade became highly distorted, especially with the use of export subsidies, which would not normally have been allowed for industrial products. The Uruguay Round agreement is a significant first step towards order, fair competition and a less distorted sector.
It is being implemented over a six-year period (10 years for developing countries) that began in1995. Participants’ have agreed to initiate negotiations for continuing the reform process before end of the implementation period. The negotiations are now underway. In agriculture trade, member countries should use tariffs, which must be bound. Agreement on Agriculture, Article 4, explicitly prohibits the use of quantitative import restrictions, variable import levies, minimum import prices, discretionary import licensing, non-tariff measures maintained through state trading enterprises, voluntary export restraints and similar border measures. By the same agreement, countries are required to reduce support granted to the agriculture sector, as well as export subsidies if they have had any. Additionally, there are New Rules and Commitments relating to the Agriculture Agreement whose objective is to reform trade in the sector and to make policies more market oriented. This would improve predictability and security for importing and exporting countries alike. The new rules and commitments apply to:
Market access: 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 or less 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% (converting the quotas and other types of measures to tariffs in this way was called “tariffication”).Domestic Support: Some you can, Some you can’t: The main complaint about policies, which 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 in the world markets. The Agricultural Agreement distinguishes between support programmes that stimulate production directly, and those that are considered to have no direct effect. Domestic policies that do have a direct effect on production and trade have to be cut back. Developed countries agreed to reduce the tariff rate by 20% over six years in 1995. Developing countries are making 13% cuts over 10 years. Least Developed Countries do not need to make any cuts. 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, and infrastructure and food security. They also include payments made directly to farmers that do not stimulate production, such as
certain forms of direct income support, assistance to help farmers, restructure agriculture, and directly payments under environmental and regional assistance programmes.
(c) Trade of Manufactures In trade of manufactures, although members are strongly encouraged to aim for free trade, they are allowed, when necessary, to use protective measures against foreign competition, although only through tariffs. GATT prohibits the use of quantitative restrictions except for specific exceptions. One of those exceptional cases refers to balance of payments difficulties when a country is permitted to restrict imports to safeguard its external financial position. However the ‘understanding on Balance of Payments Provisions” strongly urges members to try and use price-based measures (such as import surcharges and import deposit requirements) instead of quantitative restrictions.
2 General Agreement on Trade in Service (GATS):
GATS is the first ever set of multilaterally, legally enforceable rules, covering international trade in services. It was negotiated in the Uruguay Round. Like the agreement on goods, GATS operate on three levels: the main text containing general principles and obligations; annexes dealing with rules for specific sectors; and individual countries specific commitments to provide access to their markets. Unlike in goods, GATS has a fourth special element: lists showing where countries are temporarily not applying the “most-favored-nation” principle of nondiscrimination. These commitments, like tariff schedules under GATT, are an integral part of the agreement. So are the temporary withdrawals of the mostfavored nation treatment.
Basic Principles of GATS
• All services are covered by GATS
• Most favored nation treatment applies to all services, except the one-off
temporary exemptions
• National treatment applies in the areas where commitments are made
• Transparency in regulations, inquiry points
• Regulations have to be objective and reasonable
• International payments: normally unrestricted
• Individual countries’ commitments: negotiated and bound
• Progressive liberalization: through further negotiations
Scope and Coverage of Services under GATS
As per the scope and coverage of GATS, the agreement applies to all trade in services by WTO members. The exception is the services supplied in the exercise of governmental authority such as central banking and social security, which are neither supplied on a commercial basis nor in competition with other service
suppliers. The GATS schedule largely follows a classification based on the United Nations Central Product Classification system, which identifies 11 basic service sectors plus a twelfth category for miscellaneous service. These are:
• Business (including professional and computer) services
• Communication services
• Construction and related engineering services
• Distribution services
• Educational services
• Environmental services
• Financial (insurance and banking) services
• Health-related and social services
• Tourism and travel-related services
• Recreational, cultural and sporting services
• Transport services and
• Other services not included elsewhere
The agreement defines services in terms of four different modes of supply: cross-border, consumption abroad, commercial presence in the consuming country, and presence of natural persons. These are described as:
• Cross border supply of services, or “Mode 1” in the jargon, corresponds with the normal form of trade in goods. It is the supply of services from one country to another. It covers those cases where service is supplied to the consumer by the service supplier from outside the country i.e. the service supplier is located in another country. Example: supply of legal advice, computer program or engineering design or entertainment product through Internet, international telephone calls etc.
• Consumption abroad or “Mode 2” refers to consumers or firms making use of a service in another country. Typically, this involves the consumer travelling to the supplying country, perhaps for tourism or to attend an educational establishment or for medical check up.
• Commercial presence or “Mode 3” is the supply of a service by a foreign company setting up subsidiaries or branches to provide services in another country. For example, establishment of branch offices or agencies to deliver such services as banking, legal advice or communication. It provides, implicitly, the rights of establishment to the foreigners.
• Presence of natural persons or “Mode 4” refers to individuals travelling from their own country to supply services in another country. For example, fashion models, consultants, professors, research experts. To make it more clear, a foreign consultant may travel to the country to supply consultant service, or some employees of a firm may travel to the country to provide the service, which the firm is meant to supply. Even if members undertake Mode 4 commitments to allow natural persons to provide services in their territories,
they may still regulate the entry and stay of the persons concerned, for instance by requiring visas, as long as they do not prevent the commitments from being fulfilled.
Obligations:
The most important general obligations in the Agreement are MFN and the transparency with respect to all measures affecting trade in services. There is no general obligations to offer national treatment and market access to foreign suppliers; these obligations are confined to the sectors and sub-sectors specifically included in the individual schedule of commitments of each member, subject to any limitations with respect to each mode of supply. The schedule of commitments are the result of bilateral negotiations on market access and national treatment, based on a process of offer on request, which facilitates the achievement of a balanced package of trade liberalization. Once commitments are made they are binding and cannot be modified or withdrawn without compensating trading partners and thus, even where commitments have not gone beyond guaranteeing the status quo, they have long-term implications. This provides exporters of services, as well as foreign investors, with a greater degree of security and predictability than hereto. Regarding market access, the following six forms of measure affecting free market access that shall not be applied to the foreign service or its supplier unless there use is clearly provided for in the schedule. They are:
• limitations on the number of service suppliers;
• limitations on the total value of services transactions or assets;
• limitations on the total number of service operations or the total quantity of
service output;
• limitations on the number of persons that may be employed in a particular
sector or by a particular supplier;
• measure that restrict or require supply of the service through specific types of
legal entity or joint venture; and
• percentage limitations on the participation of foreign capital, or limitations on
the total value of foreign investment
With regard to the national treatment obligation, GATS states that in the sectors covered by its schedule, and subject to any conditions and qualifications set out in the schedule, each member shall give treatment to foreign services and service suppliers treatment, in measures affecting supply of services, no less favorable than it gives to its own services and suppliers. The basic obligation is limited for GATS to service sectors for which commitments have been given in the schedule of the country concerned.
How to Record Commitments:
Horizontal Commitments – a horizontal commitment applies to trade in services in all scheduled services sectors unless otherwise specified. It is in effect a binding either of measures which constitutes a limitation on market access or national treatment or of a situation in which there are no such limitations.
Sector Specific Commitments – A sector-specific commitment applies to trade in services in a particular sector. It in the context of such a commitment, a measure is maintained which is contrary to Article XVI or XVII, it must be entered as a limitation in the appropriate column (either market access or national treatment for the relevant sector and modes of supply).
Levels of commitment – Since the terms used in a members schedule create legally binding commitments, it is important that these expressions or absence of limitations to market access and national treatment be uniform and precise. Depending on the extent to which a Member has limited market access and national treatment, for each commitment with respect to each mode of supply, four cases can be foreseen:
• Full commitment – Members do not seek in any way to limit market access or national treatment in a given sector and mode of supply through measures inconsistent with Article XVI and XVII. In this situation the appropriate column is market with NONE. However, any relevant limitations listed in the horizontal section of the schedule will still apply.
• Commitment with limitations – Where market access or treatment limitations are inscribed, the member must describe in the appropriate column the measure maintained which are inconsistent with Articles XVI or XVII. The entry should describe each measure concisely, indicating the elements which make it inconsistent with Articles XVI or XVII. Further, in some cases, members may choose to partially bind measures affecting a given category of supplier. This may be achieved through an indication in the horizontal section of a schedule with the corresponding sectoral entry under the relevant mode of supply (i.e. it may thus read “Unbound except as indicated in the horizontal section”).
• No Commitment – In this case, the Member remains free in a given sector and mode of supply to introduce or maintain measures inconsistent with market access or national treatment. In this situation, the Member must record in the appropriate column the word: UNBOUND. This case is only relevant where a commitment has been made in a sector with respect to at least one mode of supply. Where all modes of supply are “unbound”, and no additional commitments have been undertaken in the sector, the sector should not appear
on the schedule.
• No commitment technically feasible – In some situations, a particular mode of supply may not be technically feasible. An example might be the cross-border supply of hair-dressing services. In these cases, the term UNBOUND* should be used. The asterix should refer to a footnote which states “Unbound due to
lack of technical feasibility.”
3 Trade-Related Aspects of Intellectual Property Rights (TRIPS):
Today’s global trade has largely been influenced by the technological and commercial innovations and inventions. Moreover, ideas and knowledge have become an increasingly important part of the present day trade. Films, music recordings, books, computer software and on-line services are bought and sold because of the information and creativity they contain, not usually because of the plastic, metal or paper used to make them. This observation makes it clear that most of the value of new medicines and other high technology products lies in the amount of inventions, innovations, research, design, and testing involved. Many products that used to be traded as low technology goods or commodities now contain a higher proportion of inventions and design in their value. For example brand-named clothing or new varieties of plants. Since these inventions, designs or creations can be copied by other unauthorized persons or parties, it becomes essential to protect the exclusive right of the creator. In this concern, creators are given the right to prevent others from
using their creations. These rights are known as intellectual property rights. These take a number of forms. For example, books, paintings and films come under copy rights; inventions can be patented; brand names and product logos can be registered etc.
Coverage of TRIPS: The WTO’s Agreement on TRIPS attempt to narrow the gaps in the way these rights are protected around the world, and to bring them under common international rules. When there are trade disputes over these rights, the WTO dispute settlement mechanism is there. The agreement covers mainly five
issues:
• How basic principles of the trading system and other international intellectual property agreements should be applied.
• How to give adequate protection to the intellectual property rights.
• How countries should enforce those rights adequately in their own territories.
• How to settle disputes on intellectual property between members of the WTO.
• Special transitional arrangements during the period when the new system is
being introduced.
Objects/Types of TRIPS: The object of this agreement are products of the
human mind whose creators are granted protection known as intellectual property
(IP) rights. They include:
• Copyright and related rights (protects the authors of books and other artistic creations).
• Trade Marks, including service marks (trade signs or symbols eligible for protection and the minimum rights conferred on their owners)
• Patents (apply to rights of inventors).
• Industrial designs (protects rights to ornamental designs).
• Treatment and other signs used to build customer loyalty and goodwill.
• Layout-designs of integrated circuits (topographies).
• Undisclosed information (trade secrets having commercial value).
• Geographical indication (use of place name to describe a product)
Protection of IP: The IP protection is variable in terms of duration – for trademarks it lasts at least 7 years, for patents it is for 20 years, while for copyright is extends for at least 50 years. Industrial design and integrated circuits must be protected for at least 10 years. The Agreement of TRIPS complements on the protection of intellectual property rights developed by the WIPO (World Intellectual Property Organization). WIPO and other organizations have worked on providing protection to various types of intellectual property and as a result, various conventions have been adopted. The TRIPS agreement builds on those international conventions by incorporating most of their provisions for IP protection. It also provides minimum standards of protection as well as prescriptions of institutional mechanism, procedures and remedies that countries should adopt to enforce the protection.
Enforcement of TRIPS : According to the agreement, governments have to ensure that IP rights can be enforced under their laws and that the penalties are tough enough. The procedures must be fair and equitable, and not unnecessarily complicated or costly. They must not entail unreasonable time limits or unwarranted delays. People should be able to ask a court to review an administrative decision or to appeal to a lower court’s ruling. The agreement describes in some detail how enforcement have to be handled, including rules for obtaining evidence, provisional measures, injunctions, damages, and other penalties.
Transition Arrangements: When the WTO agreements took effect on 1 January 1995, developed countries were given one year to ensure that their laws and practices conform with the TRIPS agreement. Developing countries and (under certain conditions) transition economies were given 5 years while Least Developed
Countries were given11 years.
TRIPS and Developing Countries: With respect to trade implications in developing countries, the Agreement brings both opportunities and challenges. The opportunities are: the encouragement of creativity and innovation, North-South transfer of technology, protection of consumers by controlling counterfeit trade.
The challenges are: the obligations to change IP rights system, barriers to use reverse engineering (a limitation of technology of production) and exploitation of traditional knowledge.
Major Mechanisms in WTO
1) Dispute Settlement MechanismAs Renato Ruggiero remarks, the Dispute Settlement Mechanism (DSM) is the “WTO’s most individual contribution” to the stability of the global economy. Without a means of settling disputes, the rules based system would be worthless because the rules would not be enforced. The WTO’s procedure underscores the
rule of law, and it makes the trading system more secure and predictable. The system is based on clearly defined rules, with timetables for completing a case. First rulings are made by a panel where ruling is endorsed (or rejected) by the WTO’s full membership. Appeals based on points of law are also possible.
This point is made explicit by WTO (1998, p. 42) which states that “The Uruguay Round agreement introduced a more structured process with more clearly defined stages in the procedure. It introduced greater discipline for the length of time a case should take to be settled, with flexible deadlines set in various stages of
the procedures. The agreement emphasizes that prompt settlement is essential if the WTO is to function effectively. It sets out in considerable detail the procedures and the timetable to be followed in resolving disputes. If a case runs its full course to a first ruling, it should not normally take more than about one year – 15 months if the case is appealed. The agreed time limits are flexible, and if the case is considered urgent (e.g. if perishable goods are involved), then the case should take three months or less.” As stated in WTO (1996, p. 97) “At all stages, countries in disputes are encouraged to consults each other in order to settle “out of court.” This changed procedure made it impossible for the country loosing a case to block the adoption
of the ruling (under the old system, ruling had to be adopted by consensus which meant that a single objection could block the ruling permanently). In this case, rulings are automatically adopted unless there is a consensus to reject a ruling. In such cases a country wanting to block a ruling has to persuade other WTO members (including the adversary in the case) to share its position.
Disputes are settled by the Dispute Settlement Body (DSM) which has the sole authority to establish so-called “panels” of experts to consider the merits of each case, and to accept or reject the panel’s finding or the result of an appeal. The DSM also monitors the implementation of the rulings and recommendations and has the power to authorize retaliation when a country does not comply with a ruling.
2) Trade Policy Review Mechanism (TPRM)
Individuals and companies involved in trade have to know as much as possible about the conditions of trade. It is therefore important that regulations and policies are transparent. In the WTO, this is achieved in two ways: governments have to inform the WTO and fellow members of specific measures, policies or laws
through regular negotiations; and the WTO conducts regular reviews of individual countries trade policies – the trade policy reviews. These reviews are part of the Uruguay Round Agreement. It was agreed to set
up the reviews at the December 1988 Ministerial meetings. The first review took place the following year. Initially, they operated under GATT and, like GATT, they focused on goods trade. With the creation of the WTO, their scope was extended to include services and intellectual property. The objective of this agreement, therefore, is to increase the transparency and understanding of countries trade policies and practices, through regular monitoring. The reviews focus on members own trade policies and practices. But, they also take into account the countries wider economic and development needs, their policies and objectives and external economic environment that they face. Over the period of time, all WTO members are to come under scrutiny. The frequency of the reports is variable across countries. Technically, there are three review cycles depending on the type of country (i.e. the four largest trading entities of US, EU, Japan and Canada are examined approximately once every two years, the next sixteen countries in terms of their share of world trade, are reviewed every four years while for all other members, a review is due every six years). For each review, two documents are prepared: a policy statement by the government under review, and a detailed report written
independently by the WTO Secretariat. These two reports, together with the proceedings of the Trade Policy Review Body’s meetings are published shortly afterwards. WTO requires that regulations be transparent. To attain this objective, governments must inform WTO through notifications as well as WTO conducting
regular policy review. The trade policy reviews, which is done through the Trade Policy Review Mechanism (TPRM), was first introduced in 1989 on an interim basis, and, with the creation of the WTO it has become a permanent feature of the trading system. With this change in status, TPRM also gained in coverage as it now
extends to goods and services trade and to intellectual property rights. The objective of this permanent feature in the system are (WTO, 1998):
• To increase transparency and understanding of countries trade policies and practices through regular monitoring
• To improve the quality of public inter-governmental debate on the issues; and
• To enable a multilateral assessment of the effects of policies on the world trading system.
It should be noted that LDC’s, and in the case of smaller trading entities, reviews are prepared only when requested by countries themselves. Further, the approach for producing TPRM reports are different from that of the IMF or WB due to resource constraints where the relevant WTO division writes its reports on the basis of the replies reviewed members send to a questionnaire, discussions with officials during the mission visit and information collected from other sources.
Miscellaneous Agreements and Mechanisms
Besides the agreements and mechanisms discussed above, there are two other agreements: Plurilateral Agreements and Information Technology Agreement.
1) Plurilateral Agreements
Initially there were four plurilateral agreements which were not signed by all members: civil aircraft, government procurement, dairy products, and beef. But the last two agreements (dairy and beef) were terminated at the end of 1997. For the most part, all WTO members subscribe to all WTO agreements. There remain, however, two agreements originally negotiated in the Tokyo Round, which have a narrower group of signatories, and are know as “plurilateral Agreements”. All other Tokyo Round agreements became multilateral obligations (i.e. obligations for all WTO members) when the WTO was established in 1995. The
two are : Trade in Civil Aircraft and Government Procurement.
Trade in Civil Aircraft Agreement: The Agreement of Trade in Civil Aircraft entered into force on 1 January 1980. It now has 21 signatories. It
eliminates import duties on all aircraft, other than military aircraft as well as, on all other products covered by the agreement – civil aircraft, engines and their parts and components, all components and sub-assemblies of civil aircraft, and flight simulators and their parts and components. It contains disciplines on government directed procurement of civil aircraft and inducements of purchase as well as on government financial support for the civil aircraft sector.
Agreement on Government Procurement: In most countries, the government is the biggest purchaser. At the same time, the political pressure to favor domestic supplies over their foreign competitors can be very strong. This agreement was first negotiated during the Tokyo Round and entered into force on 1 January 1984. It is designed to make laws, regulations, proceedings and practices regarding government procurement more transparent and to ensure they do not protect domestic products or suppliers. It has two elements – general rules and obligations and schedules of national entities in each member country whose procurement is subject to the agreement. It now has 23 member countries participating.
The present agreement and commitments were negotiated in the Uruguay Round. The new agreement also extends coverage to services (including construction services), procurement at the sub-central level and procurement by public utilities. This new agreement took effect on 1 January 1996. It also reinforce rules guaranteeing fair and non-discriminatory conditions of international competition. The agreement applies to contracts worth more that specified threshold values. For central government purchases of goods and services, the threshold is SDR 130,000. For government entities, the threshold varies but is generally in the region of SDR 200,000. For utilities, thresholds are generally in the area of SDR 400,000 and for construction contract, in general the threshold value is SDR 5,000,000.
2) Information Technology AgreementThe “Ministerial Declaration on Trade in Information Technology (IT) Products” (generally referred to as Information Technology Agreement) was signed by 25 leading IT countries in 1996. These countries account for more than 95 percent of international trade in IT products. The Agreement is open for signatories by other countries. Accordingly, some countries (e.g. Poland, Philippines, Panama) have joined the Agreement.
Parties to the Agreement have agreed to slash tariffs for 225 products which are limited to computer hardware only (these products include computer, calculators, fax machines, ATMs, telephone sets, diskettes, paging machines, antennas, adapters, repeaters and monitors). They have met their obligations by the end of 2000. The “late comers” are also required to do this. They should approach the “Committee of Participation” under the Agreement with a “Notification of Interest” to joining the Agreement.
Nepal's accession to WTO
Nepal became the 147th Member of the WTO on 23 April 2004. As part of its accession commitments, Nepal bound 99.4% of its tariff lines and made extensive commitments under the GATS. It has not been involved in any dispute under the WTO Dispute Settlement Mechanism, either directly or as a third party. Since acceding to the WTO, Nepal has made very few notifications; the authorities have requested help from the Secretariat in this regard. Nepal grants at least MFN treatment to all its trading partners.
The World Trade Organization (WTO) is the only international body dealing with the rules of trade between nations. While the link between trade and economic growth is clear, the critical importance of WTO is in providing a transparent rule based trading system. This rule based trading system helps to prevent potentially devastating country actions such as occurred in the mid 1930’s when the competitive devaluation initiated by the USA influenced the severity of the Great Depression. The end result of the stable rule based
system, embodied in GATT and presently reflected in WTO, is that global economic trade has been on a positive trend since the last half a century. Presently(at the time the article is prepared), there are 157 countries that are WTO member and 26 countries have the status of observers. To capture the benefit of a stable trading system, Nepal was granted the membership of WTO on 23rd of April, 2004. While Nepal’s membership aspiration dates back from May 1989, the past years have shown large strides in the quest for membership in this international trading organization.
The entry of Nepal into WTO have significant repercussions on the domestic economic environment. For example, there is an increase in trade flows of both goods and services.
system, embodied in GATT and presently reflected in WTO, is that global economic trade has been on a positive trend since the last half a century. Presently(at the time the article is prepared), there are 157 countries that are WTO member and 26 countries have the status of observers. To capture the benefit of a stable trading system, Nepal was granted the membership of WTO on 23rd of April, 2004. While Nepal’s membership aspiration dates back from May 1989, the past years have shown large strides in the quest for membership in this international trading organization.
The entry of Nepal into WTO have significant repercussions on the domestic economic environment. For example, there is an increase in trade flows of both goods and services.
A Short History of the Rules-Based Trading System:
The current institutional framework of the global trading system – the WTO –was created on 1 January 1995 replacing the then General Agreement on Trade and Tariffs (GATT). WTO is a global trade organization of 157 member countries. Prior to this, trade rules had been developing under GATT to meet the evolving needs of the participating countries and the global community. GATT was entered into force in January 1948 by 23 founding member countries (officially “contracting parties”) to salvage what was left of the original proposition
called the Havana declaration, whose objective was to establish the International Trade Organization. GATT was instrumental in the creation of a strong multilateral trading system that introduced successive rounds of more liberalized, more stable and predictable trading rules. The general principle of WTO is to have freer and more predictable trade without discrimination and being more beneficial for less developed countries. The
most important principles built into the foundation of the multilateral trading system are further discussed:
• Trade without discrimination
• Most-favored nation (MFN): treating other nations equally – a tariff reduction granted to one country that has to also be extended to all countries in the GATT; this is a multilateralization of the bilateral liberalization.
• National treatment: treating foreigners and locals equally – countries should not discriminate between it’s own and foreign products once they have crossed the border and entered the market.
• Freer trade: gradually through negotiation – the objective is to gradually reduce trade barriers as one of the most obvious means of encouraging trade.
• Predictability: binding commitments – provide stability and predictability which in turn widens business opportunities; a change in binding has highopportunity costs.
• Promoting fair competition – a system of rules dedicated to open, fair and undistorted competition.
• Encouraging development and economic reform: contributes to development, special assistance and trade concession for developing countries, flexibility in WTO agreements.
The current institutional framework of the global trading system – the WTO –was created on 1 January 1995 replacing the then General Agreement on Trade and Tariffs (GATT). WTO is a global trade organization of 157 member countries. Prior to this, trade rules had been developing under GATT to meet the evolving needs of the participating countries and the global community. GATT was entered into force in January 1948 by 23 founding member countries (officially “contracting parties”) to salvage what was left of the original proposition
called the Havana declaration, whose objective was to establish the International Trade Organization. GATT was instrumental in the creation of a strong multilateral trading system that introduced successive rounds of more liberalized, more stable and predictable trading rules. The general principle of WTO is to have freer and more predictable trade without discrimination and being more beneficial for less developed countries. The
most important principles built into the foundation of the multilateral trading system are further discussed:
• Trade without discrimination
• Most-favored nation (MFN): treating other nations equally – a tariff reduction granted to one country that has to also be extended to all countries in the GATT; this is a multilateralization of the bilateral liberalization.
• National treatment: treating foreigners and locals equally – countries should not discriminate between it’s own and foreign products once they have crossed the border and entered the market.
• Freer trade: gradually through negotiation – the objective is to gradually reduce trade barriers as one of the most obvious means of encouraging trade.
• Predictability: binding commitments – provide stability and predictability which in turn widens business opportunities; a change in binding has highopportunity costs.
• Promoting fair competition – a system of rules dedicated to open, fair and undistorted competition.
• Encouraging development and economic reform: contributes to development, special assistance and trade concession for developing countries, flexibility in WTO agreements.
The original GATT rules (consisting of 38 articles and nine annexes) have been modified to address new international trade challenges but the basic principles have never changed. One major area of modification occurred with respect to the treatment of developing countries when Part 4 (Trade and Development) was
added to the original rules. This ministerial decision was adopted at the end of the Uruguay round, which offers least developed countries extra flexibility in implementing WTO agreements. Another major reform occurred with the last negotiation rounds, the Uruguay Round, when the entire system was revised and
updated to meet the challenges of introducing new areas into negotiations. The revised set of rules is now known as GATT 1994 to differentiate it from the original rules (GATT 1947).
During the period of 1948 to 1994, GATT presided over eight multilateral liberalization rounds . Several early rounds were most focused on reducing tariffs and it was not until the Tokyo Round that the non-tariff barriers
and other issues were introduced into the negotiations. The results of negotiations on those issues were stipulated in several “codes” which were binding only for the contracting parties who signed a particular code (there were nine codes, including inter alia code on subsidies and countervailing measure, technical barriers to trade, government procurement, customs valuation, anti-dumping and trade in civil aircraft). Finally, the longest round so far, the Uruguay Round, introduced negotiations of 15 subjects including three new areas: agriculture, services and intellectual property.
added to the original rules. This ministerial decision was adopted at the end of the Uruguay round, which offers least developed countries extra flexibility in implementing WTO agreements. Another major reform occurred with the last negotiation rounds, the Uruguay Round, when the entire system was revised and
updated to meet the challenges of introducing new areas into negotiations. The revised set of rules is now known as GATT 1994 to differentiate it from the original rules (GATT 1947).
During the period of 1948 to 1994, GATT presided over eight multilateral liberalization rounds . Several early rounds were most focused on reducing tariffs and it was not until the Tokyo Round that the non-tariff barriers
and other issues were introduced into the negotiations. The results of negotiations on those issues were stipulated in several “codes” which were binding only for the contracting parties who signed a particular code (there were nine codes, including inter alia code on subsidies and countervailing measure, technical barriers to trade, government procurement, customs valuation, anti-dumping and trade in civil aircraft). Finally, the longest round so far, the Uruguay Round, introduced negotiations of 15 subjects including three new areas: agriculture, services and intellectual property.
In addition, the Uruguay Round resulted in the establishment of the WTO that replaced GATT as a separate international agency although GATT, as the set of internationally agreed rules on trade in an updated form, continue to be at the center of the WTO system. There are, however, important differences between
GATT and WTO (WTO, 1998, p. 14), which are:
• While GATT had a provisional nature, the WTO and its agreements are of permanent nature and WTO has the recognition of international economic organizations.
• While GATT as a legal text had “contracting parties”, WTO as an organization has members.
• While GATT was dealing only with trade in goods, the WTO covers trade in services and intellectual property rights as well.
• While GATT’s Dispute Settlement System was slow and suffered from countries being able to veto the process, the WTO’s system is faster and cannot be blocked.
GATT and WTO (WTO, 1998, p. 14), which are:
• While GATT had a provisional nature, the WTO and its agreements are of permanent nature and WTO has the recognition of international economic organizations.
• While GATT as a legal text had “contracting parties”, WTO as an organization has members.
• While GATT was dealing only with trade in goods, the WTO covers trade in services and intellectual property rights as well.
• While GATT’s Dispute Settlement System was slow and suffered from countries being able to veto the process, the WTO’s system is faster and cannot be blocked.
The Structural Organization:
The WTO is run by its member governments. All WTO members may participate in all Councils, Committees, etc, except Appellate Body, Dispute Settlement Panels, Textile Monitoring Body, and Plurilateral Committees. All major decisions in WTO are made by the membership as a whole, either by ministers (who meet every two years) or by officials (who meet regularly in Geneva). Decisions are normally taken by consensus. In this respect, the WTO is not like some other international organizations such as the World Bank and International Monetary Fund. In the WTO, power is not delegated to a board of directors, and the bureaucracy has no influence over individual countries’ policies (although some analytical comments are made in the regular trade policy reviews). When WTO rules impose disciplines on countries’ policies, that is the
outcome of negotiations among two members. The rules are enforced by the member themselves under agreed procedures that they negotiated. Sometimes enforcement includes the threat of trade sanctions. But those sanctions are imposed by member countries, not by the organization.
Highest Authority (The Ministerial Conference): WTO belongs to its members. The member countries make their decisions through various councils and committees, whose membership consists of all WTO members, topmost is the ministerial conference which has to meet at least once every two years. Ministers
of member countries take part in this conference.
Ministers met for the first time in Singapore in December 1996, in Switzerland in 1998, in Seattle of USA in December 1999 and in Doha of Qatar in 2001. The ministerial Conference can take decisions on all matters under any of the multilateral trade agreements.
Second Level: General Council: Day to day work in between the Ministerial Conference is handled by three bodies:
(1) The General Council
(2) The Dispute Settlement Body
(3) The Trade Policy Review Body
All three are in fact the same-the Agreement Establishing the WTO states they are all the General Council, although they meet under different terms of reference.Again, all three consist of all WTO members. They report to the ministerial conference. The General Council acts on behalf of the Ministerial Conference on
all WTO affairs. It meets as the Dispute Settlement Body and the Trade Policy Review Body to oversee procedures for settling disputes between members and to analyze members’ trade policies.
Third Level (Councils for each broad area of trade and more): Three more councils, each handling a different area of trade, report to the General Council:
• The Council for Trade in Goods(Goods council)
• The Council for Trade in Services(Services Council)
• The Council for Trade-Related Aspects of Intellectual Property (TRIPS
Council)
As their name indicates, the three are responsible for the workings of the WTO agreements dealing with their respective areas of trade. These three also have subsidiary bodies, which cover issues such as trade and development, the environment, regional trading arrangements, and administrative issues.
Fourth Level (Down to the nitty-gritty): Each of the higher level councils has subsidiary bodies. The Goods Council has 11 committees dealing with specific subjects (such as agriculture, market access, subsidies, anti-dumping measures and so on). Again these consists of all member countries. Also reporting to the Goods
Council is the Textiles Monitoring Body, which consists of a chairman and 10 members acting in their personal capacities, and groups dealing with notifications (governments informing the WTO about current and new policies or measures) and state trading enterprises. The Services Council has seen some changes in its subsidiary bodies. The completion of the basic telecommunications negotiations in February 1997 meant
the end of negotiating group, at least until the new services negotiating round starts in 2000. The same could happen to the financial services negotiating group. In theory, the negotiating group in maritime services still exists, but with the talks suspended until 2000, the group is unlikely to be active. Other subsidiaries deal
with professional services, GATS rules and specific commitments. At the General Council level, the Dispute Settlement Body also has two subsidiaries: the dispute settlement “panels” of experts appointed to adjudicate on unresolved disputes, and the Appellate Body that deals with appeals.
The WTO Secretariat:
The WTO Secretariat is based in Geneva and is headed by the Director General who is presently Mike Moore of New Zealand. Since decisions are taken by Members only, the Secretariat has no decision-making power. The main duties of the WTO Secretariat are to supply technical and professional support for the
various councils and committees, to provide technical assistance for developing countries, to monitor and analyze development in world trade, to provide information to the public and the media and to organize the ministerial conferences. These duties are effected by the Secretariat professional staff of 629 representing about 60 nationalities. The WTO Secretariat can be described as being organized into divisions with
functional (i.e. Accession division, Agriculture and commodities division, Economic research and analysis division, Intellectual property and investment division, Legal affairs division, Market access division, Ministerial sessions division, Rules division, Statistical division, Secretariat working group on the integrated framework of LDC issues, Technical cooperation division, Textiles division, Trade and environmental division, Trade and finance division, Trade in services division, Trade policies review division and Training division),
information and liaison (i.e. Information and media relations division and External relations division) and support roles (i.e. Administrative and general services division, Informatics division, Language, service and documentation division). The divisions are normally headed by a Director who reports to a Deputy Director
General or directly to the Director General. Further, there is the WTO appellate body and its secretariat for hearing appeals and to act as arbiters during disputes. The WTO financial budget is mostly derived from contributions of WTO members. These are established according to a formula based on their share of international trade. The remainder of the budget is financed through miscellaneous income (i.e. the rental fee and sales of WTO print and electronic publications). The WTO manages a number of trust funds, which have been contributed by Members. These are used in support of special activities for technical cooperation and training meant to enable least-developed and developing countries to make better use of WTO and draw greater benefit from the multilateral trading system. The total budget for the WTO in 2011 was $ 290 million(196 million Swiss francs ) .
AN OVERVIEW OF THE AGREEMENTS AND MECHANISMS IN WTO
At the heart of the WTO, there are a number of multilateral agreements which are negotiated and signed by the bulk of the world’s trading nations. These documents provide the legal ground-rules for international commerce. They are essentially contracts; binding governments to keep their trade policies with-in
agreed limits. An overview table of the basic structure of WTO is given below:
1 General Agreement on Trade and Tariffs (GATT): GATT is a multilateral agreement on trade in goods. Before 1995, GATT itself was an international agency containing the main set of rules for international trade.
The then GATT had contracting parties and it used to deal with goods. Since the establishment of WTO, GATT has become one of the agreements dealing with trade in goods. This agreement is concerned with associate agreements, understandings, and decisions made for the biggest portion of constraints and allow
for most of the exclusions in trade policy formulation by members. GATT is led by the principles of WTO under which members must design and implement their trade policies to be non-discriminatory. Members must observe the national treatment principle and when granting protection, use tariffs, which are reasonable
and bound.
Under GATT, members deal with:
• Agriculture
• Health regulations for farm products
• Textiles and clothing
• Product standards
• Investment measures
• Antidumping measures
• Customs valuation methods
• Pre-shipment inspection
• Rates of origin
• Import licensing
• Subsidies and counter measures
• Safeguards
The GATT requires governments to make their trade policies transparent. And they share a common three-part structure:
(a) Tariffs: More Bindings and Closer to Zero The bulkiest results of Uruguay Round are 22,500 pages listing individual countries’ commitments on specific categories of goods and services. These include commitments to cut and bind their customs duty rates on imports of goods and in some cases, tariffs are being cut to zero-with zero rates also committed in the 1997 on information technology products. There is also a
significant increase in the number of “bound” tariffs-duty rates that are committed in the WTO and are difficult to raise. The proportion of imports that have bound tariff rates is raised by this agreement to 99 percent for developed countries, while for developing countries it has jumped to 73 percent (from 21 percent before the Uruguay Round). Economies in transition have also increased their bindings to 98 percent of total imports. These high proportions of imports with tariffs that are bound help traders and investors gain more confidence about those markets stability and security.
(b) Agriculture: Fairer Markets for Farmers: The original GATT did apply to agricultural trade, but it contained loopholes. For example, it allowed countries to use some non-tariff measures such as import quotas, and to subsidize. Agricultural trade became highly distorted, especially with the use of export subsidies, which would not normally have been allowed for industrial products. The Uruguay Round agreement is a significant first step towards order, fair competition and a less distorted sector.
It is being implemented over a six-year period (10 years for developing countries) that began in1995. Participants’ have agreed to initiate negotiations for continuing the reform process before end of the implementation period. The negotiations are now underway. In agriculture trade, member countries should use tariffs, which must be bound. Agreement on Agriculture, Article 4, explicitly prohibits the use of quantitative import restrictions, variable import levies, minimum import prices, discretionary import licensing, non-tariff measures maintained through state trading enterprises, voluntary export restraints and similar border measures. By the same agreement, countries are required to reduce support granted to the agriculture sector, as well as export subsidies if they have had any. Additionally, there are New Rules and Commitments relating to the Agriculture Agreement whose objective is to reform trade in the sector and to make policies more market oriented. This would improve predictability and security for importing and exporting countries alike. The new rules and commitments apply to:
Market access: 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 or less 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% (converting the quotas and other types of measures to tariffs in this way was called “tariffication”).Domestic Support: Some you can, Some you can’t: The main complaint about policies, which 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 in the world markets. The Agricultural Agreement distinguishes between support programmes that stimulate production directly, and those that are considered to have no direct effect. Domestic policies that do have a direct effect on production and trade have to be cut back. Developed countries agreed to reduce the tariff rate by 20% over six years in 1995. Developing countries are making 13% cuts over 10 years. Least Developed Countries do not need to make any cuts. 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, and infrastructure and food security. They also include payments made directly to farmers that do not stimulate production, such as
certain forms of direct income support, assistance to help farmers, restructure agriculture, and directly payments under environmental and regional assistance programmes.
(c) Trade of Manufactures In trade of manufactures, although members are strongly encouraged to aim for free trade, they are allowed, when necessary, to use protective measures against foreign competition, although only through tariffs. GATT prohibits the use of quantitative restrictions except for specific exceptions. One of those exceptional cases refers to balance of payments difficulties when a country is permitted to restrict imports to safeguard its external financial position. However the ‘understanding on Balance of Payments Provisions” strongly urges members to try and use price-based measures (such as import surcharges and import deposit requirements) instead of quantitative restrictions.
2 General Agreement on Trade in Service (GATS):
GATS is the first ever set of multilaterally, legally enforceable rules, covering international trade in services. It was negotiated in the Uruguay Round. Like the agreement on goods, GATS operate on three levels: the main text containing general principles and obligations; annexes dealing with rules for specific sectors; and individual countries specific commitments to provide access to their markets. Unlike in goods, GATS has a fourth special element: lists showing where countries are temporarily not applying the “most-favored-nation” principle of nondiscrimination. These commitments, like tariff schedules under GATT, are an integral part of the agreement. So are the temporary withdrawals of the mostfavored nation treatment.
Basic Principles of GATS
• All services are covered by GATS
• Most favored nation treatment applies to all services, except the one-off
temporary exemptions
• National treatment applies in the areas where commitments are made
• Transparency in regulations, inquiry points
• Regulations have to be objective and reasonable
• International payments: normally unrestricted
• Individual countries’ commitments: negotiated and bound
• Progressive liberalization: through further negotiations
Scope and Coverage of Services under GATS
As per the scope and coverage of GATS, the agreement applies to all trade in services by WTO members. The exception is the services supplied in the exercise of governmental authority such as central banking and social security, which are neither supplied on a commercial basis nor in competition with other service
suppliers. The GATS schedule largely follows a classification based on the United Nations Central Product Classification system, which identifies 11 basic service sectors plus a twelfth category for miscellaneous service. These are:
• Business (including professional and computer) services
• Communication services
• Construction and related engineering services
• Distribution services
• Educational services
• Environmental services
• Financial (insurance and banking) services
• Health-related and social services
• Tourism and travel-related services
• Recreational, cultural and sporting services
• Transport services and
• Other services not included elsewhere
The agreement defines services in terms of four different modes of supply: cross-border, consumption abroad, commercial presence in the consuming country, and presence of natural persons. These are described as:
• Cross border supply of services, or “Mode 1” in the jargon, corresponds with the normal form of trade in goods. It is the supply of services from one country to another. It covers those cases where service is supplied to the consumer by the service supplier from outside the country i.e. the service supplier is located in another country. Example: supply of legal advice, computer program or engineering design or entertainment product through Internet, international telephone calls etc.
• Consumption abroad or “Mode 2” refers to consumers or firms making use of a service in another country. Typically, this involves the consumer travelling to the supplying country, perhaps for tourism or to attend an educational establishment or for medical check up.
• Commercial presence or “Mode 3” is the supply of a service by a foreign company setting up subsidiaries or branches to provide services in another country. For example, establishment of branch offices or agencies to deliver such services as banking, legal advice or communication. It provides, implicitly, the rights of establishment to the foreigners.
• Presence of natural persons or “Mode 4” refers to individuals travelling from their own country to supply services in another country. For example, fashion models, consultants, professors, research experts. To make it more clear, a foreign consultant may travel to the country to supply consultant service, or some employees of a firm may travel to the country to provide the service, which the firm is meant to supply. Even if members undertake Mode 4 commitments to allow natural persons to provide services in their territories,
they may still regulate the entry and stay of the persons concerned, for instance by requiring visas, as long as they do not prevent the commitments from being fulfilled.
Obligations:
The most important general obligations in the Agreement are MFN and the transparency with respect to all measures affecting trade in services. There is no general obligations to offer national treatment and market access to foreign suppliers; these obligations are confined to the sectors and sub-sectors specifically included in the individual schedule of commitments of each member, subject to any limitations with respect to each mode of supply. The schedule of commitments are the result of bilateral negotiations on market access and national treatment, based on a process of offer on request, which facilitates the achievement of a balanced package of trade liberalization. Once commitments are made they are binding and cannot be modified or withdrawn without compensating trading partners and thus, even where commitments have not gone beyond guaranteeing the status quo, they have long-term implications. This provides exporters of services, as well as foreign investors, with a greater degree of security and predictability than hereto. Regarding market access, the following six forms of measure affecting free market access that shall not be applied to the foreign service or its supplier unless there use is clearly provided for in the schedule. They are:
• limitations on the number of service suppliers;
• limitations on the total value of services transactions or assets;
• limitations on the total number of service operations or the total quantity of
service output;
• limitations on the number of persons that may be employed in a particular
sector or by a particular supplier;
• measure that restrict or require supply of the service through specific types of
legal entity or joint venture; and
• percentage limitations on the participation of foreign capital, or limitations on
the total value of foreign investment
With regard to the national treatment obligation, GATS states that in the sectors covered by its schedule, and subject to any conditions and qualifications set out in the schedule, each member shall give treatment to foreign services and service suppliers treatment, in measures affecting supply of services, no less favorable than it gives to its own services and suppliers. The basic obligation is limited for GATS to service sectors for which commitments have been given in the schedule of the country concerned.
How to Record Commitments:
Horizontal Commitments – a horizontal commitment applies to trade in services in all scheduled services sectors unless otherwise specified. It is in effect a binding either of measures which constitutes a limitation on market access or national treatment or of a situation in which there are no such limitations.
Sector Specific Commitments – A sector-specific commitment applies to trade in services in a particular sector. It in the context of such a commitment, a measure is maintained which is contrary to Article XVI or XVII, it must be entered as a limitation in the appropriate column (either market access or national treatment for the relevant sector and modes of supply).
Levels of commitment – Since the terms used in a members schedule create legally binding commitments, it is important that these expressions or absence of limitations to market access and national treatment be uniform and precise. Depending on the extent to which a Member has limited market access and national treatment, for each commitment with respect to each mode of supply, four cases can be foreseen:
• Full commitment – Members do not seek in any way to limit market access or national treatment in a given sector and mode of supply through measures inconsistent with Article XVI and XVII. In this situation the appropriate column is market with NONE. However, any relevant limitations listed in the horizontal section of the schedule will still apply.
• Commitment with limitations – Where market access or treatment limitations are inscribed, the member must describe in the appropriate column the measure maintained which are inconsistent with Articles XVI or XVII. The entry should describe each measure concisely, indicating the elements which make it inconsistent with Articles XVI or XVII. Further, in some cases, members may choose to partially bind measures affecting a given category of supplier. This may be achieved through an indication in the horizontal section of a schedule with the corresponding sectoral entry under the relevant mode of supply (i.e. it may thus read “Unbound except as indicated in the horizontal section”).
• No Commitment – In this case, the Member remains free in a given sector and mode of supply to introduce or maintain measures inconsistent with market access or national treatment. In this situation, the Member must record in the appropriate column the word: UNBOUND. This case is only relevant where a commitment has been made in a sector with respect to at least one mode of supply. Where all modes of supply are “unbound”, and no additional commitments have been undertaken in the sector, the sector should not appear
on the schedule.
• No commitment technically feasible – In some situations, a particular mode of supply may not be technically feasible. An example might be the cross-border supply of hair-dressing services. In these cases, the term UNBOUND* should be used. The asterix should refer to a footnote which states “Unbound due to
lack of technical feasibility.”
3 Trade-Related Aspects of Intellectual Property Rights (TRIPS):
Today’s global trade has largely been influenced by the technological and commercial innovations and inventions. Moreover, ideas and knowledge have become an increasingly important part of the present day trade. Films, music recordings, books, computer software and on-line services are bought and sold because of the information and creativity they contain, not usually because of the plastic, metal or paper used to make them. This observation makes it clear that most of the value of new medicines and other high technology products lies in the amount of inventions, innovations, research, design, and testing involved. Many products that used to be traded as low technology goods or commodities now contain a higher proportion of inventions and design in their value. For example brand-named clothing or new varieties of plants. Since these inventions, designs or creations can be copied by other unauthorized persons or parties, it becomes essential to protect the exclusive right of the creator. In this concern, creators are given the right to prevent others from
using their creations. These rights are known as intellectual property rights. These take a number of forms. For example, books, paintings and films come under copy rights; inventions can be patented; brand names and product logos can be registered etc.
Coverage of TRIPS: The WTO’s Agreement on TRIPS attempt to narrow the gaps in the way these rights are protected around the world, and to bring them under common international rules. When there are trade disputes over these rights, the WTO dispute settlement mechanism is there. The agreement covers mainly five
issues:
• How basic principles of the trading system and other international intellectual property agreements should be applied.
• How to give adequate protection to the intellectual property rights.
• How countries should enforce those rights adequately in their own territories.
• How to settle disputes on intellectual property between members of the WTO.
• Special transitional arrangements during the period when the new system is
being introduced.
Objects/Types of TRIPS: The object of this agreement are products of the
human mind whose creators are granted protection known as intellectual property
(IP) rights. They include:
• Copyright and related rights (protects the authors of books and other artistic creations).
• Trade Marks, including service marks (trade signs or symbols eligible for protection and the minimum rights conferred on their owners)
• Patents (apply to rights of inventors).
• Industrial designs (protects rights to ornamental designs).
• Treatment and other signs used to build customer loyalty and goodwill.
• Layout-designs of integrated circuits (topographies).
• Undisclosed information (trade secrets having commercial value).
• Geographical indication (use of place name to describe a product)
Protection of IP: The IP protection is variable in terms of duration – for trademarks it lasts at least 7 years, for patents it is for 20 years, while for copyright is extends for at least 50 years. Industrial design and integrated circuits must be protected for at least 10 years. The Agreement of TRIPS complements on the protection of intellectual property rights developed by the WIPO (World Intellectual Property Organization). WIPO and other organizations have worked on providing protection to various types of intellectual property and as a result, various conventions have been adopted. The TRIPS agreement builds on those international conventions by incorporating most of their provisions for IP protection. It also provides minimum standards of protection as well as prescriptions of institutional mechanism, procedures and remedies that countries should adopt to enforce the protection.
Enforcement of TRIPS : According to the agreement, governments have to ensure that IP rights can be enforced under their laws and that the penalties are tough enough. The procedures must be fair and equitable, and not unnecessarily complicated or costly. They must not entail unreasonable time limits or unwarranted delays. People should be able to ask a court to review an administrative decision or to appeal to a lower court’s ruling. The agreement describes in some detail how enforcement have to be handled, including rules for obtaining evidence, provisional measures, injunctions, damages, and other penalties.
Transition Arrangements: When the WTO agreements took effect on 1 January 1995, developed countries were given one year to ensure that their laws and practices conform with the TRIPS agreement. Developing countries and (under certain conditions) transition economies were given 5 years while Least Developed
Countries were given11 years.
TRIPS and Developing Countries: With respect to trade implications in developing countries, the Agreement brings both opportunities and challenges. The opportunities are: the encouragement of creativity and innovation, North-South transfer of technology, protection of consumers by controlling counterfeit trade.
The challenges are: the obligations to change IP rights system, barriers to use reverse engineering (a limitation of technology of production) and exploitation of traditional knowledge.
Major Mechanisms in WTO
rule of law, and it makes the trading system more secure and predictable. The system is based on clearly defined rules, with timetables for completing a case. First rulings are made by a panel where ruling is endorsed (or rejected) by the WTO’s full membership. Appeals based on points of law are also possible.
This point is made explicit by WTO (1998, p. 42) which states that “The Uruguay Round agreement introduced a more structured process with more clearly defined stages in the procedure. It introduced greater discipline for the length of time a case should take to be settled, with flexible deadlines set in various stages of
the procedures. The agreement emphasizes that prompt settlement is essential if the WTO is to function effectively. It sets out in considerable detail the procedures and the timetable to be followed in resolving disputes. If a case runs its full course to a first ruling, it should not normally take more than about one year – 15 months if the case is appealed. The agreed time limits are flexible, and if the case is considered urgent (e.g. if perishable goods are involved), then the case should take three months or less.” As stated in WTO (1996, p. 97) “At all stages, countries in disputes are encouraged to consults each other in order to settle “out of court.” This changed procedure made it impossible for the country loosing a case to block the adoption
of the ruling (under the old system, ruling had to be adopted by consensus which meant that a single objection could block the ruling permanently). In this case, rulings are automatically adopted unless there is a consensus to reject a ruling. In such cases a country wanting to block a ruling has to persuade other WTO members (including the adversary in the case) to share its position.
Disputes are settled by the Dispute Settlement Body (DSM) which has the sole authority to establish so-called “panels” of experts to consider the merits of each case, and to accept or reject the panel’s finding or the result of an appeal. The DSM also monitors the implementation of the rulings and recommendations and has the power to authorize retaliation when a country does not comply with a ruling.
2) Trade Policy Review Mechanism (TPRM)
Individuals and companies involved in trade have to know as much as possible about the conditions of trade. It is therefore important that regulations and policies are transparent. In the WTO, this is achieved in two ways: governments have to inform the WTO and fellow members of specific measures, policies or laws
through regular negotiations; and the WTO conducts regular reviews of individual countries trade policies – the trade policy reviews. These reviews are part of the Uruguay Round Agreement. It was agreed to set
up the reviews at the December 1988 Ministerial meetings. The first review took place the following year. Initially, they operated under GATT and, like GATT, they focused on goods trade. With the creation of the WTO, their scope was extended to include services and intellectual property. The objective of this agreement, therefore, is to increase the transparency and understanding of countries trade policies and practices, through regular monitoring. The reviews focus on members own trade policies and practices. But, they also take into account the countries wider economic and development needs, their policies and objectives and external economic environment that they face. Over the period of time, all WTO members are to come under scrutiny. The frequency of the reports is variable across countries. Technically, there are three review cycles depending on the type of country (i.e. the four largest trading entities of US, EU, Japan and Canada are examined approximately once every two years, the next sixteen countries in terms of their share of world trade, are reviewed every four years while for all other members, a review is due every six years). For each review, two documents are prepared: a policy statement by the government under review, and a detailed report written
independently by the WTO Secretariat. These two reports, together with the proceedings of the Trade Policy Review Body’s meetings are published shortly afterwards. WTO requires that regulations be transparent. To attain this objective, governments must inform WTO through notifications as well as WTO conducting
regular policy review. The trade policy reviews, which is done through the Trade Policy Review Mechanism (TPRM), was first introduced in 1989 on an interim basis, and, with the creation of the WTO it has become a permanent feature of the trading system. With this change in status, TPRM also gained in coverage as it now
extends to goods and services trade and to intellectual property rights. The objective of this permanent feature in the system are (WTO, 1998):
• To increase transparency and understanding of countries trade policies and practices through regular monitoring
• To improve the quality of public inter-governmental debate on the issues; and
• To enable a multilateral assessment of the effects of policies on the world trading system.
It should be noted that LDC’s, and in the case of smaller trading entities, reviews are prepared only when requested by countries themselves. Further, the approach for producing TPRM reports are different from that of the IMF or WB due to resource constraints where the relevant WTO division writes its reports on the basis of the replies reviewed members send to a questionnaire, discussions with officials during the mission visit and information collected from other sources.
Miscellaneous Agreements and Mechanisms
Besides the agreements and mechanisms discussed above, there are two other agreements: Plurilateral Agreements and Information Technology Agreement.
1) Plurilateral Agreements
Initially there were four plurilateral agreements which were not signed by all members: civil aircraft, government procurement, dairy products, and beef. But the last two agreements (dairy and beef) were terminated at the end of 1997. For the most part, all WTO members subscribe to all WTO agreements. There remain, however, two agreements originally negotiated in the Tokyo Round, which have a narrower group of signatories, and are know as “plurilateral Agreements”. All other Tokyo Round agreements became multilateral obligations (i.e. obligations for all WTO members) when the WTO was established in 1995. The
two are : Trade in Civil Aircraft and Government Procurement.
Trade in Civil Aircraft Agreement: The Agreement of Trade in Civil Aircraft entered into force on 1 January 1980. It now has 21 signatories. It
eliminates import duties on all aircraft, other than military aircraft as well as, on all other products covered by the agreement – civil aircraft, engines and their parts and components, all components and sub-assemblies of civil aircraft, and flight simulators and their parts and components. It contains disciplines on government directed procurement of civil aircraft and inducements of purchase as well as on government financial support for the civil aircraft sector.
Agreement on Government Procurement: In most countries, the government is the biggest purchaser. At the same time, the political pressure to favor domestic supplies over their foreign competitors can be very strong. This agreement was first negotiated during the Tokyo Round and entered into force on 1 January 1984. It is designed to make laws, regulations, proceedings and practices regarding government procurement more transparent and to ensure they do not protect domestic products or suppliers. It has two elements – general rules and obligations and schedules of national entities in each member country whose procurement is subject to the agreement. It now has 23 member countries participating.
The present agreement and commitments were negotiated in the Uruguay Round. The new agreement also extends coverage to services (including construction services), procurement at the sub-central level and procurement by public utilities. This new agreement took effect on 1 January 1996. It also reinforce rules guaranteeing fair and non-discriminatory conditions of international competition. The agreement applies to contracts worth more that specified threshold values. For central government purchases of goods and services, the threshold is SDR 130,000. For government entities, the threshold varies but is generally in the region of SDR 200,000. For utilities, thresholds are generally in the area of SDR 400,000 and for construction contract, in general the threshold value is SDR 5,000,000.
2) Information Technology AgreementThe “Ministerial Declaration on Trade in Information Technology (IT) Products” (generally referred to as Information Technology Agreement) was signed by 25 leading IT countries in 1996. These countries account for more than 95 percent of international trade in IT products. The Agreement is open for signatories by other countries. Accordingly, some countries (e.g. Poland, Philippines, Panama) have joined the Agreement.
Parties to the Agreement have agreed to slash tariffs for 225 products which are limited to computer hardware only (these products include computer, calculators, fax machines, ATMs, telephone sets, diskettes, paging machines, antennas, adapters, repeaters and monitors). They have met their obligations by the end of 2000. The “late comers” are also required to do this. They should approach the “Committee of Participation” under the Agreement with a “Notification of Interest” to joining the Agreement.
Nepal's accession to WTO
Nepal started to liberalize its trade and investment regime, unilaterally, in 1992 and became the first least developed country (LDC) to join the WTO through the full accession process in April 2004. Since then, economic performance has not resulted in the strong development Nepal needs. Key factors impeding higher rates of GDP growth include political instability (due to the transition process embarked upon after the internal conflict of 1996-2006) and supply-side constraints, notably energy shortages, poor infrastructure, and labour strikes. Recognizing the effective role of trade to achieve sustainable and inclusive economic growth, and to establish the conditions to reduce poverty and improve the living standard of its people, Nepal is taking further steps to create a more friendly business environment and help its exporters to become more competitive.
Nepal became the 147th Member of the WTO on 23 April 2004. As part of its accession commitments, Nepal bound 99.4% of its tariff lines and made extensive commitments under the GATS. It has not been involved in any dispute under the WTO Dispute Settlement Mechanism, either directly or as a third party. Since acceding to the WTO, Nepal has made very few notifications; the authorities have requested help from the Secretariat in this regard. Nepal grants at least MFN treatment to all its trading partners.
Nepal's Trade Policy Review 2012 to WTO:
1. Nepal started to liberalize its trade and investment regime, unilaterally, in 1992 and became the first least developed country (LDC) to join the WTO through the full accession process in April 2004. Since then, economic performance has not resulted in the strong development Nepal needs. Key factors impeding higher rates of GDP growth include political instability (due to the transition process embarked upon after the internal conflict of 1996-2006) and supply-side constraints, notably energy shortages, poor infrastructure, and labour strikes. Recognizing the effective role of trade to achieve sustainable and inclusive economic growth, and to establish the conditions to reduce poverty and improve the living standard of its people, Nepal is taking further steps to create a more friendly business environment and help its exporters to become more competitive.
(1) Economic Environment
2. Nepal's real GDP growth rate averaged 4.2% per year during 2004-11. It is still one of the poorest countries in South Asia with about 25% of the population living below the poverty line. Moreover, lack of diversity of its exports and heavy reliance on remittances from abroad (over 20% of GDP) make the economy very vulnerable to external economic shocks.
3. Nepal's annual average inflation rate reached double digits in 2009 mainly because of supply disruptions – general strikes, road closures, and cartelizing of essential goods and supplies, including food items – as well as swelling of domestic consumption (over 90% of GDP) due to increased remittances inflows. Prices in Nepal are also greatly influenced by inflation in India since the Nepali rupee is pegged to the Indian currency.
4. Nepal's fiscal management remains prudent, and recently implemented revenue administration reforms have resulted in strong customs and VAT collection. Consequently, the percentage of public debt to GDP declined from 59% in 2004 to an estimated 32% in 2011.
5. Nepal's trade deficit more than quadrupled during 2003-10 because of weak export performance and buoyant imports. However, high remittances from abroad led to current account surpluses during most of the period under review.
6. Trade accounts for about 40% of GDP. Nepal has a narrow export basket, and its export market is concentrated in a few countries, led by India. Between 2003 and 2010, the share of merchandise exports in GDP declined from 10% to 5%, while imports more than tripled, pushed by increased consumption due to higher remittances.
7. Nepal attracts very limited FDI inflows, largely due to the high cost of doing business and limited investment opportunities. In addition, certain economic activities are reserved for national investors (e.g. fisheries, cottage (traditional) industries, travel agencies and consultancy services). Thus, a major objective of Nepal's economic policy programme is to promote and encourage a transparent and fair business environment for both domestic and foreign investment, and to increase the role of the private sector in the development process.
(2) Institutional Framework
8. Formulation and implementation of Nepal's trade policy is the responsibility of the Ministry of Commerce and Supplies (MoCS), in coordination with other ministries. The private sector provides inputs to trade policy formulation by communicating its views either directly to the MoCS or through the Federation of Nepalese Chambers of Commerce and Industry and the Nepal Chamber of Commerce.
9. Nepal became the 147th Member of the WTO on 23 April 2004. As part of its accession commitments, Nepal bound 99.4% of its tariff lines and made extensive commitments under the GATS. It has not been involved in any dispute under the WTO Dispute Settlement Mechanism, either directly or as a third party. Since acceding to the WTO, Nepal has made very few notifications; the authorities have requested help from the Secretariat in this regard. Nepal grants at least MFN treatment to all its trading partners.
10. Nepal participates in two overlapping regional agreements: the SAFTA (Afghanistan, Bangladesh, Bhutan, India, the Maldives, Pakistan, and Sri Lanka), and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC, with Bangladesh, Bhutan, India, Myanmar, Sri Lanka, and Thailand). In addition, Nepal has signed 17 bilateral trade agreements, notably with China and India.
11. Recognizing the effective role of trade in transforming a traditional agrarian economy into a modern economy, Nepal adopted its 2009 Trade Policy. It is being implemented through Nepal's Trade Integration Strategy (NTIS) 2010, which, inter alia, aims to strengthen Nepal's capacity to benefit from trade-related technical assistance and aid for trade, and promote 19 priority export potential activities: cardamom; ginger; honey; lentils; tea; noodles; medicinal herbs/essential oils; handmade paper; silver jewellery; iron and steel; pashmina; wool products; tourism; labour services; information technology and business process outsourcing services; health services; education; engineering; and hydro‑electricity. Other potential exports are: sugar, coffee, dairy products, cement, and transformers.
12. The NTIS also identifies needs for donor support to address current constraints to trade and to help potential exports to flourish. Support to the trade agenda is being provided by bilateral and multilateral partners. Recently, the Government, led by the MoCS, has started to improve donor coordination in Nepal's aid-for-trade agenda. Nepal's efforts to mainstream trade into its national process, improve donor coordination, and implement the NTIS priorities are supported by the Enhanced Integrated Framework, in particular through a multi-year project for enhancing institutional capacity.
(3) Trade Policy Instruments
13. Being a landlocked country, trading costs are particularly high in Nepal. The transit of goods through India (mainly the port of Kolkata) to international markets imposes significant shipping costs and delays on Nepalese exporters. On the other hand, the Customs Act and Regulation of 2007 simplified customs procedures in Nepal. Progress made in trade facilitation has also improved customs clearance.
14. Nepal's tariff is relatively simple, as 99.3% of total lines are ad valorem. Its average applied MFN tariff decreased from 13.8% in 2002/03 to 12.2% in 2011/12, while the average final bound tariff is 26.3%. Nepal applies no tariff rate quotas. Upon its accession to the WTO, Nepal bound all but 54 tariff lines at the HS 8-digit level. The authorities note that Nepal excluded these lines for revenue collection and environment protection reasons.
15. Nepal's tax revenue relies heavily on taxes collected at the border by Customs because of its administrative convenience compared with other sources of revenue collection. Nepal has eliminated a number of other duties and charges (ODCs) on imports, and the only remaining ODC – the agriculture reform fee – is levied on imports from India and the Tibet Autonomous Region of China, from where agricultural imports are exempted from tariffs.
16. Nepal does not have legislation on contingency trade remedies; nonetheless, draft legislation on anti-dumping and countervailing measures is under preparation. Nepal has not applied any anti‑dumping, countervailing, or safeguard measures.
17. Import and export prohibitions and restrictions are maintained on a number of products, to protect national security, maintain public morals, and conserve exhaustible natural resources. Some restrictions are applied to ensure the availability of domestic raw materials, which are essential for domestic processing industries. Other than for goods restricted from importation, there is no need for an import licence in Nepal.
18. Nepal applies export taxes on some products; according to the authorities, these are applied to protect the environment, ensure food security, and discourage trade diversion to India. These export restraints may not be the best way to achieve some of the Government's objectives. For example, levying export tax on wood tends to discourage the export of wood. When demand for wood from other countries increases, the export tax on wood tends to encourage illegal wood exports.
19. The Government promotes exports through various channels (e.g. profits earned through exports are subject to an income tax rate at 15%, instead of the 25% general corporate income tax rate), and legislation to establish special economic zones and export processing zones is in the pipeline.
20. Nepal has a complicated income tax system; in particular, corporate income tax rates vary depending on the lines of business. Foreigners' income and income from export-related activities also have different tax rates. A standard 13% VAT is applied to most goods and services. Some goods and services are exempted from VAT, while some are zero rated. For the most part, the same VAT rate is applied to domestically produced and imported goods and services.
21. The authorities noted that privatization of public enterprises has been on hold since 2008. The Government acknowledges that public enterprises, in general, have performed poorly, and increasing the participation of the private sector could increase productivity, by improving efficiency and reducing the fiscal burden on the Government. However, there has been no regular monitoring of the privatized enterprises. Some enterprises have been closed after privatization, and others are operating with no increase in investment, production, and productivity. Petroleum and petroleum products, and iodine salt are the only products under state trading, managed by the Nepal Oil Corporation and the Salt Trading Corporation, respectively.
22. Nepalese exporters find it difficult to compete in global markets due to weak standardization and conformity assessment infrastructure. Nepal lacks an accreditation system and sufficient testing facilities. Its traditional agriculture exports (such as honey) have been subject to restrictions in the international market.
23. Nepal's law on government procurement, adopted in 2007, also covers procurement by public enterprises; it gives a price preference of 10% to Nepalese products. However, public procurement is inadequately monitored due to lack of trained staff and underfunded resources. Among other major problems, procurement methods have not been defined, no procurement reporting system has been established, e‑procurement system does not exist, and IT application has not been introduced. Thus, compliance with the procurement legislation has been limited, and there has been unfair competition.
24. Nepal adopted a competition law in 2007, which established the Competition Promotion and Market Protection Board. However, the law does not apply, for example, to export business, and business relating to cottage and small industries.
25. As an LDC, Nepal is not required to apply the provisions of the TRIPS Agreement until 1 July 2013. It is preparing legislation on industrial property protection. So far, there have been no cases of customs action in IPR enforcement at the border.
(4) Sectoral Policies
26. Agriculture accounts for 36% of real GDP and employs around two thirds of the labour force, mostly in subsistence farming. With most of the country facing food deficit, Nepal's key objective for the sector is food security. Government assistance is provided mainly through loans and structural policies (e.g. credit and support for general research and extension services). Nepal's simple average applied MFN rate on agriculture, hunting and fishing is 9.7% and the final bound rate is 33.9%, leaving ample margin for increasing applied tariffs. Nepal does not have tariff-rate quotas on agricultural products, nor a system of guaranteed prices.
27. Under the Agriculture Perspective Plan 1995-2015, the Government aims, inter alia, to: increase factor productivity; alleviate poverty, and significantly improve living standards through accelerated growth and employment; and transform subsistence agriculture into commercial agriculture.
28. Manufacturing contributes only 6.1% to real GDP, reflecting Nepal's early stage of industrial development. Under its Industrial Policy 2010, Nepal aims, inter alia, to promote value-added industries, and increase production and productivity. Nepal does not provide direct payments to any manufacturing industry. Nonetheless, there are certain incentives, such as income tax, VAT, excise duty, and customs duties exemptions or deductions for certain industries. According to the authorities, the purpose of these incentives is to ensure balanced industrial development both regionally and sector-wise.
29. The simple average applied MFN tariff on manufacturing is 12.3%, while the final bound rate is 26% leaving ample scope for increasing applied MFN tariffs. Some of Nepal's unbound tariff lines are on manufacturing products (e.g. cement). The positive tariff escalation in some industries (e.g. food, beverages and tobacco, and textile and leather) provides higher levels of effective protection to those industries than that reflected by the nominal rates.
30. Despite having abundant hydropower resources, Nepal has not been able to generate enough electricity to match its demand. Addressing its energy shortages, therefore, is crucial for Nepal to achieve rapid and sustained economic growth.
31. Services is, increasingly, a key sector of Nepal's economy in terms of contribution to real GDP (about 50%). Nepal is a net importer of services. Under the GATS, it undertook extensive market-access commitments, and included 77 subsectors in its schedule. Nepal also signed the Reference Paper on basic telecommunications.
32. Since its WTO accession, Nepal has taken steps to address some of the structural problems in certain services activities, notably in banking where total foreign shareholding increased from 67% to 80%, while foreign banks/financial institutions may open branches for wholesale banking since 2010. Nepal is renowned worldwide as a tourist destination thanks to its ethnic/lingual/social diversity and natural beauty. Nevertheless, it faces key problems, notably poor infrastructure, limited air connectivity, and shortage of good quality accommodation and skilled manpower. Some of these shortcomings are being addressed. Further liberalization of services should improve the efficiency of the economy as a whole and the competitiveness of Nepalese exports, especially by reducing costs related to telecoms and transport.
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