Substance of Accession Negotiations

5.2 Rules

Economic policies  back to top

The main aim of this section of the Working Party Report, and the following part dealing with the framework for making and enforcing policies affecting trade in goods and services, is to provide Members with an understanding of the context within which the applicant’s WTO obligations on specific trade policy measures will operate. Certain information requested is relevant to specific WTO provisions. Discussion in the Working Parties has focussed on the following subjects: monetary and fiscal policies; foreign exchange and payments, including balance of payments measures; investment regime; State ownership and privatization; pricing policies and competition policy.

Monetary and fiscal policies

Experience indicates that information submitted by applicants on monetary policy and fiscal policy should include the objectives pursued, the responsible agencies and the policy instruments used. Summaries of fiscal policies should indicate if any tax reforms have been undertaken and any changes planned. Applicants should also indicate whether they have achieved their objectives in this area and give an account of the present situation.

The aspects of taxation covered by the rules of GATT 1994 are the subject of the sections on the application of internal taxes to imports and exports. There are no provisions in GATS on taxation.

Discussion of this item in Working Parties has usually been brief and there are no Protocol commitments in this section of their Reports.

Foreign exchange and payments

Applicants need to describe how their exchange rate is determined, whether their currency is convertible, whether foreign exchange is freely available for trade and payments purposes, whether any regulations exist relating to the retention of foreign currencies, or repatriation or surrender requirements. Applicants should also describe their balance of payments situation.

While foreign exchange questions are within the jurisdiction of the IMF and trade policy questions within the competence of the WTO,¹²⁸ foreign exchange questions and trade policy questions are interrelated. Of most direct relevance to the WTO is whether foreign exchange is freely available in payment for current account transactions, as exporters need to know how they will be paid. The WTO therefore recognizes this interrelationship. The GATT 1994 provides that Members must not, by exchange action, frustrate the intent of its provisions and that they must either be members of the Fund or enter into a special exchange agreement with the WTO.¹²⁹ GATS provides that Members must allow international transfers and payments for current transactions relating to specific commitments entered into under that agreement.¹³⁰

Working Parties have been careful to respect the competence of the IMF. While Members have demonstrated an interest in obtaining adequate information on all matters dealt with in this section, they have laid stress on issues of direct relevance to international trade. They have, for instance, focussed on knowing whether applicants are members of the IMF and whether they have accepted Article VIII of its Articles of Agreement which provides that “no member shall, without the approval of the Fund, impose restrictions on the making of payments and transfers for current international transactions”. They have been particularly concerned that foreign exchange controls may be used to regulate the level and composition of trade in goods and services.

All Working Party Reports but one have been able to note, that the acceding government concerned is a member of the IMF and has accepted its Article VIII obligations. The great majority of WTO Members do not pursue the matter further. In the case of the one applicant that was not a member of IMF, members noted that it would have to enter into “a Special Exchange Agreement as provided for in Article XV:6 of the GATT 1994 incorporating obligations consistent with Fund Article VIII”, which it duly did.¹³¹

In one case an acceder responded to concerns that elements of its foreign exchange system provided scope for practices that distorted trade flows by stating that in the context of accession to the WTO, it was prepared to comply with the provisions of Article XV of the GATT 1994 regarding its foreign exchange restrictions.¹³² Similar concerns were raised in two other cases. The two acceding countries accepted a Protocol commitment that, in accordance with these obligations, and unless otherwise provided for in the IMF’s Articles of Agreement, they would implement its obligations with respect to foreign exchange matters in accordance with the provisions of the WTO Agreement and related declarations and decisions of the WTO that concerned the IMF. They further committed that they would not resort to any laws, regulations or other measures, including any requirements with respect to contractual terms, that would restrict the availability to any individual or enterprise of foreign exchange for current international transactions within its customs territory to an amount related to the foreign exchange inflows attributable to that individual or enterprise.¹³³ One of these acceders stated, in addition, that it “would provide information on exchange measures as required under Article VIII, Section 5 of the IMF’s Articles of Agreement, and such other information on its exchange measures as was deemed necessary in the context of the transitional review mechanism.”¹³⁴ The other committed not only to implement its obligations with respect to foreign exchange matters in accordance with the provisions of the WTO Agreement and related declarations and decisions of the WTO that concerned the IMF but also with the relevant provisions of the IMF’s Articles of Agreement itself.¹³⁵

GATT 1994 permits the imposition of quantitative restrictions to deal with balance of payments difficulties, Article XII regulating its use by developed countries and Article XVIII:B its use by developing countries. WTO Members maintaining such measures must consult with the WTO. While not modifying these rights and obligations, the Uruguay Round Understanding on this subject confirmed Members’ commitment to give preference to price-based measures. Only one acceding country actually maintained balance of payments measures at the time of its accession, these taking the form of an import surcharge. Its Protocol commitment on the subject contained a timetable for its reduction and elimination and arrangements for consultations with the WTO.¹³⁶ In a limited number of other cases Working Parties have judged it necessary to obtain a commitment from applicants on balance of payments measures they might take in the future. Four accepted the commitments along the following lines: “If balance-of-payment measures were ever necessary in the future, [X] would impose them in a manner consistent with the relevant WTO provisions, including Article XII of the GATT 1994 and the Understanding on Balance-of-Payments Provisions of the GATT 1994”.¹³⁷ They were therefore treated as developed countries. One LDC accepted the same commitment, modified to refer to Article XVIII.¹³⁸ Curiously, the other LDC to have acceded accepted a commitment to impose any balance of payments measures in a manner consistent with both Article XII and Article XVIII.¹³⁹ In another case the relevant GATT 1994 provision was not cited but the new Member undertook a commitment to “give preference to those measures referred to in the Understanding on the Balance of Payments Provisions of GATT 1994 as price-based measures to address the situation and [to] maintain any measures only so long as necessary. In the circumstance that [it] must resort to measures that were not price-based, [it] would transform these measures into price-based measures within 6 months after implementing the initial measures. Moreover, any measures taken for balance-of-payment reasons would not be used to provide import protection for specific sectors, industries or products”.¹⁴⁰

Investment regime

Investment policies are closely related to trade policies and applicants are requested to provide a summary of their investment policies. They should provide details of: the objectives of the policies; the legislative framework; the government entities responsible for implementation; incentives granted to domestic and foreign investors; bans and restrictions on such investment (e.g. sectors closed to foreign investment, limitations on percentage of ownership); conditions imposed on investment (e.g. technology transfer, domestic purchasing and trade-balancing requirements); approval procedures; access to sources of capital, land and national resources, visas and residence permits, etc; right of foreign investors to initiate legal proceedings and to repatriate profits. In particular, any differences between the treatment of domestic and foreign investment should be indicated. Any international investment agreements should be listed.

A number of provisions of GATT 1994 relate specifically to investment policies. The Agreement on Trade-Related Investment Measures (TRIMs), which confirms that domestic purchasing and trade-balancing requirements are contrary to the GATT rules on national treatment and quantitative restrictions, is the subject of a separate section below under the heading Trade in Goods. The provisions of the Agreement on Subsidies and Countervailing Measures (SCM Agreement) relate, inter alia, to subsidies providing investment incentives. The GATS deals with investment in that its definition of trade, unlike that of the GATT, includes the supply of a service by a supplier of one Member through commercial presence in the territory of another Member, which often requires investment. While the 1996 Ministerial Conference launched work in the WTO on the interaction between trade and investment, many Members opposed the initiation of negotiations on the subject in the WTO and it was effectively dropped from the agenda at the 2003 Ministerial Conference.¹⁴¹

Policies covered by the TRIMs Agreement, the SCM Agreement and the GATS are normally dealt with under the headings devoted to these subjects with only a few exceptions. Three acceding countries were permitted to confirm that their new legislation would conform to WTO obligations before it was completed.¹⁴² In one case, the acceding country confirmed that “the terms and conditions of technology transfer, production processes or other proprietary knowledge, particularly in the context of an investment, would only require agreement between the parties to the investment”.¹⁴³ In another case, an acceding country undertook commitments relating to the rights of foreign investors that had established joint ventures under its legislation on investment and enterprises and to the transparency of amendments or deletions to the list of prohibited or conditional investment sectors.¹⁴⁴

 

Notes:

128. GATT 1994, Article XV:1. back to text
129. GATT 1994, Article XV:6 to 8. back to text
130. GATS Article XI. back to text
131. Chinese Taipei para 10. The Special Exchange Agreement between the WTO and Chinese Taipei forms an integral part of Chinese Taipei’s Protocol of Accession (see Annex II of Chinese Taipei’s Protocol of Accession). back to text
132. Chinese Taipei, para 10. back to text
133. Viet Nam, para 31; China, paras 36 and 40. back to text
134. China, para 37. The transitional review mechanism is dealt with in Box 5 above. back to text
135. Viet Nam, para 31. back to text
136. Bulgaria, para 29. back to text
137. Tonga, para 14; Albania, para 65; Georgia, para 65; Estonia, para 65. back to text
138. Cambodia, para 82. back to text
139. Nepal, para 50. back to text
140. Chinese Taipei, para 88. back to text
141. WTO document WT/L/579, para 1.g: “no work towards negotiations on [this issue] will take place within the WTO during the Doha Round”. back to text
142. Tonga, para 24 (no benefits would be made contingent, in law or in fact, on export performance, import substitution or local content requirements); Saudi Arabia, para 69 (hiring and employment restrictions to be in conformity with Schedule of Specific Commitments on Services); China, para 42 (revision of investment guidelines would be in conformity with the WTO Agreement). back to text
143. China, para 49. back to text
144. Viet Nam, para 117. back to text