Tuesday, May 20, 2008

WTO Principles: Foundation of Multilateral Trading System

International trade law is very important for us to understand in this era of globalization. To fully understand how it works, we basically need to understand how multilateral trading system operates.

Taking WTO as the model, it is important for us to know the principles that govern the economic activity of each nation with one another.

Trade without discrimination

1. Most-favoured-nation (MFN) : treating other people equally. Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.

2. National treatment: Treating foreigners and locals equally. Imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents.

Freer trade- barriers coming down through negotiation

Predictability- foreign companies, investors and governments should be confident that trade barriers (including tariffs and non-tariff barriers) should not be raised arbitrarily; tariff rates and market-opening commitments are “bound” in the WTO

Promoting fair competition— discouraging “unfair” practices such as export subsidies and dumping products at below cost to gain market share

Encouraging development and economic reform- more beneficial for less developed countries, giving them more time to adjust, greater flexibility, and special privileges.

Source: World Trade Organization

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