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Background

The world trade system

Container ship in the port of Freetown in Sierra Leone

The world trade order has been constantly evolving over the centuries. The first phase of the globalisation we are still experiencing today started in the middle of the 19th century. Since then, there has been a growing conviction among economic policymakers that free trade has economic benefits for all countries involved.

In the light of increasing economic integration, it also became clear that international rules are needed to make global trade free and fair. However, the negotiations on a global trade agreement (known as the "Doha Round"), which were aimed at further opening up markets and integrating developing countries better into the world trading system, have stalled. In response to this standstill, efforts are now being made to liberalise the economy at regional level.

Developing countries in a difficult position

For most developing countries, the liberalisation of world trade has so far not delivered the benefits that they had hoped for. Many of them are not yet able to produce high-quality products at low cost. Moreover, they cannot compete with producers from and in other countries since many developing countries do not have a functioning export industry yet. In addition, many developing countries are concerned that aspects such as sustainability and human rights, which are increasingly on the agenda of discussions on trade policy, might hurt their competitiveness.

Therefore, small and poor developing countries remain largely excluded from the growth in trade. If they want to become attractive for investors, they need to make concessions in the global competition for business locations, which is why they are establishing free trade zones or lowering their taxes, for example. However, such measures mean that governments are missing out on revenues they urgently need for investments in education, health, social systems and infrastructure.


The General Agreement on Tariffs and Trade (GATT)

After the end of World War II, there was wide agreement that the only way to develop the world economy was by dismantling tariffs and other trade barriers. That is why the newly founded United Nations hosted several international conferences on trade and employment. Among other things, their aim was to reorganise the international economic system by establishing an International Trade Organization (ITO).

This organisation was designed to be the third pillar of a new economic world order alongside the newly founded World Bank and the International Monetary Fund (IMF). However, the participating countries were unable to agree on a comprehensive set of rules. Instead, the envisaged ITO was only realised in part, and the General Agreement on Tariffs and Trade (GATT) was adopted.

The GATT came into force in 1948 and, for almost 50 years, played a major role in efforts to dismantle tariffs worldwide. The Federal Republic of Germany signed the agreement in 1951.

The aim of the multilateral agreement was to promote worldwide economic development and prosperity by removing obstacles to trade and mediating in trade conflicts. It also set forth principles to counter restrictive trade policies. These principles were later absorbed in the work of the World Trade Organization (WTO), which replaced the GATT in 1995.


The World Trade Organization (WTO)

The overarching goal of the WTO is to eliminate all global trade barriers. These include tariff barriers to trade (especially customs duties) and non-tariff barriers to trade (e.g. technical standards and regulations or time-consuming bureaucratic hurdles). Another goal is to ensure that trade policies are predictable and transparent.

After the recent accession of Liberia and Afghanistan, the WTO now has 164 members (as at September 2017) About two thirds of members are developing countries or emerging economies. Their interests are given special attention.

The WTO system is based on three pillars that are binding for all its members: the General Agreement on Tariffs and Trade (GATT, see above), the General Agreement on Trade in Services (GATS, see below) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS, see below).

The WTO is also a forum for the settlement of trade disputes. In the first ten years after the WTO was founded, there were more than 300 dispute settlement procedures. This number has now gone up to more than 500 (as at September 2017). The dispute settlement mechanism is increasingly being used by developing countries as well. For them, many special regulations and reliefs apply. As part of the so-called "Doha Round", a reform of the procedure is being negotiated.


The General Agreement on Trade in Services (GATS)

The General Agreement on Trade in Services (GATS) came into force in 1995. Similar to the GATT, which refers to the trade in goods, the agreement is aimed at opening up the member countries’ markets for the trade in services. Access restrictions are to be reduced or made transparent, or even eliminated altogether.

In particular, there are intensive discussions on liberalising public services (for example education and health), which have been excluded from the GATS up to now. Moreover, the discussion rounds have been criticised for their lack of transparency. In addition, the negotiations require a high level of technical expertise that is not readily available in all of the WTO member states.

There is also criticism that the liberalisation of services frequently requires national and local laws to be adapted. Developing countries, in particular, often lack the necessary expert knowledge and negotiating skills to assert their interests and shape their economic policy in a way that makes it conducive to development.


The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is an international agreement in the field of immaterial goods, for example in patent law. In 1994, it was added to the General Agreement on Tariffs and Trade (GATT) and, since then, has been one of the main pillars of the World Trade Organization.

The TRIPS agreement defines certain minimum standards that are designed, among other things, to protect not only the rights of authors, inventors or trademark owners but also trade secrets. At the same time, the agreement gives holders of these rights the possibility to trade in these rights and to assert these rights in the countries of their trading partners. In some cases, however, the protection of intellectual property rights is not in the public interest – for instance if medicines are only available at high prices or if universities in developing countries cannot afford to purchase scientific publications.

In order to protect such public interests and take the level of innovation in a country into account, the TRIPS agreement contains a number of exceptions. For instance, WTO member states can issue compulsory licences for producing an invention that is important to them when negotiations with the patent holder have failed. Moreover, the WTO countries agreed in 2013 that compulsory licences may also be used across borders in certain circumstances. Since then, developing countries without a domestic pharmaceutical industry, for example, have been able to import cheap medicines produced in third countries under a compulsory licence.


The Doha Round

In November 2001, the economics and trade ministers of the WTO member states met in Doha, the capital of Qatar. The WTO Ministerial Conference was meant to usher in a new multilateral liberalisation round, thereby moving development issues up the WTO agenda. The main goals of the so-called Doha Round are to further open up markets and to integrate developing countries better in global trade.

Topics of the Doha Round:

  • Agricultural sector: better market access for developing countries, dismantling the import quotas/tariffs and subsidies of industrialised countries
  • Intellectual property rights and patent law (TRIPS): improved access to medicines, among other issues
  • Services (GATS): granting a waiver for the Least Developed Countries (LDCs)
  • Market access for non-agricultural products: eliminating tariffs and other trade barriers, especially for export products from developing countries

The latest round of negotiations took place in Nairobi in 2015. The most recent WTO Ministerial Conference was held in December 2017 in Buenos Aires.


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