RIYADH, 31 October 2005 — Membership obligations and rights in the WTO are opposite sides of the same coin. Each member receives guarantees that its exports will be treated fairly, transparently and consistently in other member countries’ markets. In return, each country commits to do the same for imports from other countries. The WTO gives developing countries some flexibility in implementing their commitments. The core of WTO obligations are:

1) Most Favored Nation (MFN) Treatment

2) National Treatment, and

3) Tariff Binding.

• The most important obligation is to treat all other member countries in an unconditionally non-discriminatory fashion under the Most Favored Nation (MFN) rule. In other words, if a member reduces tariffs or other trade barrier for another member country, it must do the same for all other member countries. MFN thus gives a member country the right to be treated in a non-discriminatory fashion by all other member countries. However, the WTO allows customs unions and regional/bilateral preferential trade agreements.

• National Treatment means that foreign goods, once they have crossed the border, must be treated no less favorably than domestic goods. This obligation also applies to services trade, but only to specific services that are listed (i.e., scheduled).

• WTO members can only use tariffs to restrict imports, and all such tariffs must be bound (i.e., limited). The use of quantitative restrictions like import quotas is heavily circumscribed. All member countries must submit a schedule of bound rates when they become WTO member. WTO does not prevent member countries from binding their tariffs at rates higher than those at the moment of accession. This gives the country the right to not reduce its tariff rates and even to increase them in the future as long as they are below the bound rates. The higher is the bound rate, the more room the country has to raise tariff rates in the future. The importance of tariff binding is not in the lowering of tariffs but rather in allowing transparency of the tariff barriers.

Other obligations include:

• There are strict requirements relating to the reduction of agricultural production support, and export subsidies are prohibited, except for developing countries. The latter countries are also allowed input subsidies.

• All countries, except the least developed countries are prohibited from using export subsidies for manufactured goods.

• All countries must eliminate certain trade-related investment measures (TRIMs) such as local content requirement within five years of entry into force of the WTO agreement. Least developed countries are allowed seven years.

• In principle, the basis for customs valuations is to be the importer’s invoice. Specific conditions must be met if the invoice is to be rejected.

• Trade restrictions for balance of payments purposes must be price-based and will be under WTO surveillance.

(Khan H. Zahid is chief economist and vice president at Riyad Bank. He is based in Riyadh.)