3. wto & international marketer_yk

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WTO & International

MarketerSession 3 Week 3

Unit 1

Yoginder Kataria


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WTO FRAMEWORK


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WTO Framework & InternationalMarketing

The WTO was established on January1,1995.It is the embodiment of urgencyresults and the successor of GATT. TheWTO is based in Geneva, Switzerland


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Principles Of The TradingSystem Under WTO

Trade without Discrimination

Predictable And Growing Access ToMarkets

Promoting Fair Competition

Encouraging Development andEconomic Reform


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WTO Agreement

Multilateral Agreements on Trade inGoods

GATS

TRIPs

Understanding on rules and proceduresgoverning the settlement of disputes

TPRM


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WTO Vs GATT

GATT

It is a set of rules and

multilateral agreement.

It had no legal status.The rules of GATT were

applied to trade ingoods only.

Dispute settlement wasdilatory & not bindingon the parties.

WTO

It is a permanent

institution and has legal

status.It includes Trade in

goods,services,intellactual property rights.

Its dispute settlement istime bound ,faster &binding on the parties.


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Taking International MarketingDecisions under WTO Rules .click fordetailed article

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http://wto%20rules%20and%20international%20marketer.pdf/http://wto%20rules%20and%20international%20marketer.pdf/http://wto%20rules%20and%20international%20marketer.pdf/http://wto%20rules%20and%20international%20marketer.pdf/


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Introduction

Firms are becoming increasingly aware of theimpact the WTO system has on their activitiesin foreign markets. They certainly know that

access to markets is dependent to a largedegree on the trade liberalisation process thattakes place at the WTO. They are, however,generally less knowledgeable about the WTO

rules that affect their international marketingdecisions such as the choice of an entrymode or the pricing of products.

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Introduction

the WTO system refers to the complexand extensive body of agreements thatconstitute the rules, regulations and

practices that member states adhere toin their international trade relations.

Figure 1 shows that all steps in the

internationalisation process of the firmare affected by the WTO system.

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Entry Mode and DistributionDecisions

Figure 2 shows the various options afirm may consider when entering aforeign market. WTO rules deal directly

only with the establishment of salesoffices or subsidiaries, licensing andforeign direct investment, and indirectly

with distribution in general (according tothe national treatment principle.

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Sales Office/Subsidiary

There is no specific WTO rule dealing with the setting up of asales organization in a foreign country for the marketing of eitherconsumer or industrial products.

There are, however, rules on the trading of services. Theserules are contained in the General Agreement on Trade inServices (GATS). The terminology actually used in GATS iscommercial presence, which means any type of business orprofessional establishment within the territory of anothermember for the purpose of supplying a service, and includes thecreation or maintenance of a branch or representative office

(GATS, art. XXXVIII). The exporter of a service must check if the service to be

exported has been included in the Schedule of the targetcountry, and what specific commitments that country has made.

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Licensing

Licensing is often chosen as a means of entry when firmscannot export or proceed through foreign direct investmenteither because of entry barriers or because the firms resourcesare limited.

Firms that consider entering a market through licensing areoften afraid that they might not be able to protect theirtechnological know-how from unfair practices in foreign markets.They should, however, be aware that under the Agreement onTrade-related Aspects of Intellectual rights (TRIPS) they maywell be obliged to transfer these rights to private local parties

selected by the government of that country whether they like itor not.

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Direct Investment

The TRIMS Agreement is limited in scope,and a limited number of trade relatedinvestment requirements may still be imposed

by members such as the proportion of equityto be held by local investors or demands forthe transfer of up-to-date technology. Firmsconsidering investment in a foreign market

should, therefore, investigate what are theexact commitments, which have been madeby these countries.

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Distribution

There is no specific WTO rule dealingwith distribution. However, the nationaltreatment principle nevertheless applies

to distribution arrangements. Membercountries may not discriminate againstforeign products or services in any way

including distribution

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Products and Service Decisions

WTO rules have a bearing on both tangibleand intangible products attributes (see Figure3).

Regarding tangible attributes, WTO rules deal

with product specifications (norms andstandards), labeling, products content(foreign content and rules of origin).

Decisions about intangible attributes mayalso be affected by WTO rules on patents,copyrights, trademarks, designs andgeographical indications.

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Tangible attributes decisions for industrialproducts are affected by rules spelled out inthe Agreement on Technical Barriers to Trade

(TBT) and the Agreement on Rules of Origin(ARO). Agricultural products are dealt withinthe Agreement on the Application of Sanitaryand Phytosanitary Measures (SPS). Rules

relating to labeling are to be found in theGeneral Agreement on Tariffs and Trade,GATT 1994 (see WTO 1994).

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Product Specifications It is often required that imported products meet certain norms in

order to protect the health and safety of the population and theprotection of the environment. The TBT Agreement states thatthese compulsory norms must not be applied in a way thatresults in unnecessary obstacles to trade, and must be basedon scientific evidence. Norms are acceptable obstacles to trade

only if they are based on norms accepted internationally. TBT Agreement introduces dispositions and covers process and

production methods that have an impact on productcharacteristics as well.

Product specifications have traditionally been a major headache

for traders, and have often been used by governments as apowerful deterrent to import competition. Because of its relianceon internationally accepted standards, it may lead to increasedproduct standardisation in product design and productionprocesses.

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Packaging and Labeling

There is no specific rule dealing with packaging orlabeling although the Agreement on TBT makes itclear that packaging, marking and labelingrequirements should not constitute unnecessarybarriers to trade

They must comply with adaptation requirements inpackaging and labeling so long as they also apply tolocal firms. Therefore, governments may not imposepackaging or labeling requirements that would, in

effect, act as import barriers.

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Product Content

Exported products are often made of ingredients or partsoriginating from two or more countries. It may be a difficult taskin such a case to determine their origin. This may haveconsiderable bearing whenever duties must be applied either atfull or preferential rates depending on the country of origin of

these goods. Rules of origin may actually shut out a productfrom a target market, and cause trade distortion effects if notcarefully monitored.

The country of origin is defined as either the country where thegood was wholly produced or where the last substantial

transformation took place.

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Intangible Product Attributes:Trademarks and Geographical

Indications The value of a product does not depend exclusively on its

performance or physical characteristics. Much of its value to theconsumer or user resides in his or her perception of such cuesas price, brand name and denomination of geographical origin.This has been well demonstrated empirically in a large number

of countries, particularly with regard to the impact of branding onproduct value and to the effect of the country of origin has onconsumer preferences.

Opportunistic competitors may be tempted to appropriate orplagiarize well-established brand names or unduly claim

geographical origins that do not belong to their products,thereby granting themselves illegitimate marketing advantages.The Agreement on Trade-Related Aspects of IntellectualProperty Rights (TRIPS) provides traders with some degree ofprotection in these respects.

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Trademarks and GeographicalIndications

The Agreement confirms the exclusive rights of registeredtrademarks (TRIPS, Art. 16). Unlike patent holders, trademarksowners cannot be forced to transfer trademark ownership toother parties. Non-used trademarks may not be cancelledbefore three years have elapsed (TRIPS art. 19). Finally, it mustbe stressed that brand names may benefit from the TRIPSAgreement only if they have been properly registered.

Geographical indications (Agreement on TRIPS art. 22 to 24)identify a good as originating from a territory, a region or alocality that gives this product a value which to a large extent isto be attributed to that geographical origin. WTO members mustmake sure that the public is not misled about the geographicalorigin of a product. The Agreement provides that members mayadopt legal means to prevent the inappropriate use ofgeographical denominations.

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Pricing Decisions and WTORules

Export or transfer pricing depends on numerousfactors, which fall into four categories: costs,demand, competition and regulations, including WTOrules. WTO rules are targeted at practices that

restrict pricing decisions in the conduct ofinternational transactions. Compared to otherinternational marketing decision areas, there are arather large number of WTO rules that impinge uponpricing. They include the determination of the price of

a good when it is assessed by customs authorities,the determination of price in relation to dumping andsubsidies, and transfer pricing in multinational firms(Figure 4).

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Customs Valuation

The value of goods traded that is taken into accountby customs authorities is of major importance toexporters and importers.

If the value is more than what it should be, it will

result in higher duties at the importers expenses,consequently making the product less competitive.

It provides for measures to discourage invoicing firmsfrom lowering prices with a view of saving on

customs duties, in agreement with the importingparty.

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Pre-Shipment Inspection

The Agreement on Pre-shipment Inspection (PSI)provides guidelines designed to cope with under /over invoicing.

According to PSI, physical inspection should be

carried out in the exporting country, and when it is notpossible in the country of manufacture. Quality andquantity inspections should be conducted accordingto terms agreed between buyers and sellers. In order

to determine whether the export price reflects thecorrect value of the goods, inspection companiesshould compare the price with prices of identicalgoods offered for export from the same country

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Dumping and AntidumpingMeasures

Firms may want to set the export price at a lowerlevel than the normal price with a view of gainingmarket share or access to a new market. It is a rathercommon practice in exporting.

WTO does not condemn dumping per se. Dumping isnot allowed only if it causes or threatens to causematerial injury to an industry or if it delays theestablishment of a domestic industry in a membercountry.

The Agreement on Anti-Dumping Practices (ADP)states that if dumping is demonstrated, and if itresults in an injury or threat of injury (ADP Art. 3), theimporting country may impose an anti-dumping duty.

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Dumping and AntidumpingMeasures

Anti-dumping duties shall not be applied when themargin of dumping is de minimis(less than 2% of theexport price) or when the injury is negligible.

Exporters may avoid anti-dumping duties by

undertaking to increase their export prices (so-calledpriceundertakings ).

Anti-dumping duties may not be imposed for morethan five years, and should be terminated earlier if

they are no longer warranted. Complaints are to behandled by the Dispute Settlement Body (DSB) ofWTO.

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Subsidies Governments that do not subsidize one way or

another some sector of their economy are very fewindeed. WTO treatment of subsidies depends onwhether the goods exported are industrial oragricultural products.

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Duty Remission/ Dutydrawbacks

Under GATT, members are allowed to returnto exporters the duty that they paid onimported inputs that are being re-exported in

exported products (GATT 1994 art. XVI). The same principle applies to indirect taxes

charged to exported products (e.g. salestaxes, value-added tax, excise tax,

Agreement on SMC, Annex I). Suchremissions are not considered to be subsidies

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Transfer Pricing

As mentioned earlier, the rule is that in pricingthe transaction value should be taken intoaccount for customs valuation purpose

(Agreement on Customs Valuation art. 8:1).This applies not only to arms-lengthtransactions but also to transactions betweenentities within the same firm. Transfer pricing

must therefore be based on the true value ofthe goods traded between internationaldivisions.

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Personal Selling

One issue related to commercialpresence and pertinent to personalselling is the treatment under WTO of

staff working abroad. Only a few countries have granted free

access to foreign professionals without

commercial presence, i.e. mostEuropean Union members and Canada

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Direct Selling

Direct selling is selling to customerswithout using distribution intermediaries.It includes mail ordering and the sale of

goods and services by electronic means(fax, telephone, internet).

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Advertising, Public Relationsand Sales Promotion

Activities Goods and services that have entered other member

markets are not to receive a treatment that is lessfavorable that the treatment granted to like domesticproducts or services as per the national treatment

(NT) clause. As a result, any marketing communication activity

undertaken by an exporting firm in memberscountries, such as advertising, public relations or

sales promotion for the marketing of imported goodsor services, should not be constrained any more thanthe communication activities of like domesticproducts or services.

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3. wto & international marketer_yk

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