RESTRICTEDWORLD TRADE
ORGANIZATIONWT/TPR/OV/5
15 October 1999
(99-4459)
Trade Policy Review Body
OVERVIEW OF DEVELOPMENTS IN THE INTERNATIONAL
TRADING ENVIRONMENT
Annual Report by the Director-General
I. RECENT TRENDS IN WORLD TRADE
(i) Sharp slowdown of trade growth in 1998
1. World trade and output growth dropped sharply in 1998.  Merchandise trade rose by 4% in
volume, less than half the 10% growth rate achieved in the preceding year, but still almost twice that
recorded for world output.  All regions were affected by the slowdown, especially Asia where importsby Japan and East Asia fell for the first time since 1974.  The share of developing countries in world
trade declined for the first time in more than a d ecade.  Nearly two thirds of the world's economies
recorded a decrease in their export earnings, which was the worst performance observed in the 1990s.
2. Trade in manufactures – the traditional engine for world trade expansion – rose by 3.5%, one
of the lowest rates in the 1990s and a dramatic  slowdown from the 12% expansion in 1997.  The
fastest growing product group, office and telecommunications equipment, as well as clothing appear
to have played a prominent role in the sharp deterioration of manufactures trade.  On the other hand,
trade in minerals rose by about 6% and agricultural trade stagnated.  The value of merchandise
imports was around US$5,270 billion, 2% less than in 1997.
3. Regional import volume developments show only a moderate deceleration from the high
import growth rates in 1997 for North America, Me xico, and Western Europe.  North America's fast
growing import demand was the most dynamic component of the global trade expansion in 1998.Central/Eastern Europe and Africa, excluding S outh Africa, showed above average import growth.
Imports in Asia contracted by 8%;  the countries most affected by the financial crisis cut back their
imports by one fifth and Japan's imports declined by more than 5%.  Latin America, excluding
Mexico, registered a dramatic deceleration in im port growth, but still recorded growth above the
world average.  Variations in the export performance of regions were much smaller than for imports,but all regions recorded substantially lower growth  than in the preceding year;  Japan recorded an
absolute decline.
4. Trade in commercial services stagnated for the first time since 1980.  The global slowdown in
services exports could be observed for all major regions with the exception of Western Europe, which
recorded higher growth than in the preceding year.  Asia recorded the strongest contraction of imports
and exports of commercial services among all regions.  Exports by the transition economies and
Africa are estimated to have decreased by less than 5%, and imports stagnated.  North America and
Latin America both registered a very strong dece leration in the growth of their commercial services
exports and imports.WT/TPR/OV/5
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(ii) Slowdown halted in 1999
5. Preliminary indicators point to a halt in the slowdown of world trade growth in the first
months of 1999 and an acceleration of growth in the second quarter.  For 1999 as a whole, world
economic growth is expected to strengthen mode rately with GDP growth estimated at 3%.  The
outlook for the world economy has somewhat improved, especially taking into account the improvedgrowth forecasts for all the Asian crisis countries, and that recessions in Russia and Brazil have
proved less deep than anticipated.  The growth of world merchandise trade volume is expected to
average 4%, the same as in 1998, provided that trade gains momentum in the second half of the year,
especially in Western Europe.
6. For the first half of 1999, the value of world merchandise trade was unchanged from the
preceding year's level.  Negative growth was recorded for the dollar value of imports by Latin
America, the transition economies, and Western Europe.  Asia's imports recovered markedlythroughout the first six months of 1999, and in the second quarter exceeded the preceding year's level
by more than 5%.  U.S. merchandise import growth in the first half of 1999 was close to 8%, a higher
rate than in 1998.
7. Despite the onset of recovery in Asia and th e continued strong U.S. growth, the retarding
forces from lower growth in Western Europe, th e transition economies, and Latin America hold back
the acceleration of global output expansion.  The repercussions of sluggish growth in Western Europe,
especially in early 1999, is expected to result in a marked reduction of import growth for the full year.
Latin America's stagnation of output in 1999 is the main factor that could lead to a contraction of its
imports.  On the other hand, the recovery of Asia's imports could turn out to be even stronger than was
expected earlier in 1999, if the momentum of the upswing observed in the first half can be preservedduring the rest of the year.  Japan's imports rose by 6% in volume terms, while North America's
import growth was still close to 10% and will constitute the principal engine for this year's trade
expansion.
8. For North America, Western Europe, and Asia, an excess of import over export growth is
expected for 1999;  this should enable other regions, in particular Latin America and the transitioneconomies, to record a faster export than import growth.
(iii) Expectations for recovery in the year 2000
9. Early indicators suggest that there will be a recovery both in world output and trade in the
year 2000.  The International Monetary Fund is predicting an acceleration of output growth to 3½% in
the year 2000 largely due to higher growth in the developing countries.  World trade is expected to
expand by 6 to 7% which would be close to the average growth rate observed in the 1990s.
II. TRENDS IN TRADE POLICIES
10. The state of the world trading environment is generally sound.  There have been no major
trade policy reversals in 1999, and there is no evidence of a return to protectionist measures.  On the
contrary, a number of countries have undertaken concrete measures to further liberalize their
economic and trade regimes.
11. Two years ago the "Asian financial crisis" erupted in Thailand, spreading rapidly to other
countries in the region, affecting general investor sentiment in those and other developing countries
and transition economies, notably Russia in mid-1998 and later Brazil.  Output and employment
contracted sharply in the most directly affected c ountries, in turn adversely affecting trade by their
partners and, together with steep commodity price declines, trade by many other developing countries.
In the past, such events could have been invoked as a justification for raising import barriers, in anWT/TPR/OV/5
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attempt to contain the domestic consequences and shift the burden onto trading partners, possibly
provoking counter-measures, and thereby exacerbating the downturn.  However, this very serious
crisis unfolded in the framework of the WTO, the strengthened multilateral trading system created by
the Uruguay Round Agreements.  The system, and the good sense of governments, helped keep
markets open, facilitating adjustment and providing a critical element for recovery from the crisis.
12. The countries most directly affected by the crisis – Thailand, Korea, Indonesia, Malaysia, and
the Philippines – undertook macroeconomic stabilization and structural reform, including the
unilateral liberalization of their trade and foreign investment regimes.  Several of them have also
strengthened their financial systems to encourage more market-oriented lending practices, a process
that has been supported by their participation in the WTO agreement on financial services.  At the
same time, the trading partners of these countries have provided an external environment conducive to
adjustment.  Among the largest traders, growth in the United States played a pivotal role.  The U.S.economy sustained its strong rate of growth for the ninth consecutive year in the face of domestic
constraints on its productive capacity;  imports provided a safety valve to satisfy domestic demand,
helping to dampen inflationary pressures that might otherwise have emerged and thus contributing to
low market interest rates.
13. The Asian financial crisis was followed by an adverse shift in capital-market sentiment
towards other countries in the region, notably Korea, Indonesia, Malaysia, and the Philippines, with
adverse repercussions also for Hong Kong, China and Singapore.  The shift in sentiment contributed
to a sharp reduction in investors' desired exposure to emerging markets, with the result that net private
capital flows into these (and other) countries fell.  To correct their macroeconomic imbalances, the
countries directly affected by the crisis undertook disciplined fiscal and monetary policies.  Inaddition, a number of them undertook structural reforms, which included tackling outstanding
impediments to trade.  Thus, while the severe economic downturn and consequent loss of jobs and
related social problems might have led to protectionist pressures in these countries, information
collected by the Secretariat for Trade Policy Review s suggests instead that the liberalization of trade,
investment, and payments regimes has, by and large, progressed.
14. A factor contributing to investors' loss of confidence in Asian and other emerging market
economies was the perceived weakness of their financial systems, as manifested by imprudent
lending.  This weakness, partly due to a lack of experience within the financial institutions
themselves, but also due to inadequate regulation and supervision by the authorities, could be partly
attributed to constraints on competition in the financial services sector.  Of note, therefore, is the
countries' participation in market-opening measures for financial services implemented under the
WTO agreement on financial services;  far-reaching commitments to open the sector to new domesticand foreign service providers have been made by some countries.  Such commitments reflect the
recognition that liberalization of financial service sectors will help to avoid some of the practices that
contributed to the financial crisis and thereby facilitate a more efficient allocation of capital.
15. By firmly rejecting protectionism, the countries most affected by the Asian crisis, together
with their trading partners, placed a high degree of  confidence in the multilateral trading system.  A
striking feature of the present situation is the absence of recourse to new "legal" measures of
protection.  Although most countries directly affected have significant leeway to raise applied tariffs
without breaching their bindings, by and large, th ey have not done so.  Nor is there evidence of
unusual levels of activity involving most measures to safeguard domestic industry, the balance of
payments, transitional safeguard measures for textiles and clothing, or countervailing;  however, ledby several recent high-profile cases involving steel,  there does appear to be some increase in the
initiation of anti-dumping actions.
16. The overall level of anti-dumping activity has risen slightly since the low point recorded in
1995.  The latest available information (up to December 1998) based on Members' notifications,WT/TPR/OV/5
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indicates an increase in anti-dumping investigations.  There were 516 initiations of anti-dumping
investigations in 1998, 13% more than in the previous year, although the number of final measures
declined sharply (60 in 1998 compared with 203 in 1997).  Anti-dumping investigations by the
United States and New Zealand increased somewhat in  1998;  however, the bulk of the increase was
due to cases initiated by developing countries, in particular India, Mexico, and South Africa.
17. The role of the Dispute Settlement Body (DSB) in managing the settlement of disputes within
the WTO has remained positive, reflecting the fact that Members continue to show confidence in the
dispute settlement mechanism.  During the period  1 January to 15 August 1999, 24 new requests for
consultations were received by the DSB, bringing the total to 179 requests since the WTO's
establishment.  The proper functioning of the DS B has clearly contributed to the strengthening and
consolidation of the WTO and the multilateral trading system.
18. There has been no delay in the implementation of trade liberalization commitments agreed in
the context of the Uruguay Round.  WTO Members are phasing in, on schedule, reductions in tariffs
on products, in export subsidies, and in other measures of assistance to agricultural products.  The
integration of textiles and clothing into the WTO is proceeding as scheduled, though the expected
liberalization effects are not satisfactory to all Members;  the first and second phases of integration
took place in 1995 and 1998, the third phase is set for 2002, and full integration is to be achieved by 1January 2005.  In addition to their Uruguay Round obligations, 45 WTO Members (and one other
participant) are implementing the commitment to eliminate tariffs on information technology products
under the ITA.  Many WTO Members made market-opening commitments on telecommunication
services,
 opening the bulk of the world telecommunications market.  The national monopolies that
have dominated the industry in almost all countries are now facing competition and in many countriesare being privatized.  Many Members have also made commitments on financial services.
19. The full application of the TRIPS Agreement is delayed for many WTO Members until 2000,
under the transitional arrangements that apply to developing country and transition economy
Members;  least-developed countries may delay full application until 2006.  A number of the
concerned Members chose to notify their trading partners of their existing framework, in preparationfor the needed changes to domestic legislation, their administration and enforcement.  In the area of
customs valuation one set of transitional arrangements for implementation ends in 2000 for many
developing countries.  Consequently, the WTO Secretariat has received a very large number of
requests for technical assistance on these and other implementation issues in the past year, and
responded by arranging over 300 events in 1998, including in cooperation with other relevant
institutions.
20. Looking ahead, WTO Members are preparing the ground for the Seattle Ministerial
Conference in November 1999, at which they will seek to establish the future WTO work programme.
The "built-in" agenda, which results from the Uruguay Round, already includes negotiations on trade
in agricultural products and services.  WTO Members also recognize that the multilateral trading
system must adapt to new challenges if it is to conserve its important role in the world economy.  For
example, in September 1998, they initiated a work programme to examine all trade-related issues in
global electronic commerce.  WTO Members also continued their work on the relationship between
trade and investment, the interaction between trade and competition policy, transparency in
government procurement, trade facilitation, and trade and environment.
21. During 1999, WTO Members have undertaken evaluations of the operation of the Trade
Policy Review Mechanism (TPRM) and of the Dispute Settlement Understanding, pursuant to theappraisal and review provisions in the respectiv e Uruguay Round agreements.  Although technical in
nature, such evaluations are essential to ensure that the institutional mechanisms of the WTO function
as desired by the Members.  On Trade Policy Reviews, Members are generally of the view that the
TPRM is functioning effectively and that its objectives remain important;  efforts to improve theWT/TPR/OV/5
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efficiency in the use of resources allocated to the TPRM should continue, given the importance of
reviewing all Members, including least-developed countries (LDCs), at least once, as soon as
possible.  On dispute settlement, the Uruguay Round negotiations produced a new system without
precedent in international economic relations, and in which all potential issues and concerns, as well
as the manner in which they should be resolved, could not have been foreseen by the drafters.  Thereview has devoted considerable effort to improving the implementation of final rulings;  the issue has
been given particular visibility in the past year owing to certain recent high-profile disputes involving
some WTO Members.
22. Joining the current Members of the WTO in Seattle will be the six new Members since 1995:
Bulgaria, Ecuador, Kyrgyz Republic, Latvia, Mongolia, and Panama;  in addition, Estonia and
Georgia have accepted, subject to ratification, their Protocol of Accession to the WTO.  Most of these
new members, as well as many of the 30 applicant countries still completing their accession process,are in transition from a centrally planned to a market economy and recognize the unique contribution
of the WTO to the internal reform process.  Each of the WTO's new Members has undertaken to apply
the WTO rules and to liberalize trade.  A typical feature is a comprehensive coverage of tariff
bindings (100% of lines in most cases) together with market-opening in a broad range of services,
including value-added and basic telecommunication services, and financial services.
23. In parallel with preparations for the Seattle Ministerial, a number of countries requesting
WTO membership have accelerated their accession process.  Even if not all become Members in time
for the Seattle meeting, they are already reaping so me of the economic benefits of the process.  The
first "fact-finding" phase of the accession procedure requires the applicant to collect and submit
detailed information on its trade and economic regime, thereby improving the regime's transparency.Most applicants are engaged throughout the accession process in a continuous improvement of their
trade and economic policies, and some countries have taken steps to liberalize their trade and
economic policies.
24. The process of assessment and action is continuous within the WTO.  One illustration is the
priority being given by WTO Members to the full integration of LDCs into the world trading system.Another illustration is the activity on transparency and scope for dialogue with representatives of civil
society.  Transparency with respect to WTO documents has been improved by accelerating the de-
restriction process as well as by making all de-restricted documents available on the WTO website.
Arrangements were also made for NGOs' presence at plenary sessions of ministerial conferences.  In
addition to regular briefings for NGOs, the WTO Secretariat has created a special section on the WTO
website, and recently organized high-level meetings with NGO participation on trade and
environment and trade and development.  The WTO Secretariat also circulates a monthly list of NGOposition papers that it has received, and makes them available to Members upon request.
25. These developments in the WTO – in terms of the implementation of existing obligations by
Members or the willingness to conclude new agreements to continue the liberalization process, to
better integrate the LDCs,  improve the functioning of vital institutional mechanisms or public support
for the WTO – are signs of the vitality of the multilateral trading system.  They also demonstrate thecommitment of its Members to respect their existing obligations and build for the future, even in the
face of challenging events, such as the Asian crisis.
26. During 1999, most WTO Members participated in trade and investment liberalization at the
regional level.  As pointed out in the WTO's 1998 Annual Report, the revival of regional integration
in the 1990s is a very significant movement, covering virtually all WTO Members and a broadspectrum of market-access issues in goods and services, as well as regulatory convergence.  The
process of regional and multilateral integration can, in principle, be complementary:  domestic
reforms can be "locked in" at the multilateral and regional levels, greatly enhancing their beneficial
impact on the business environment;  multilateral negotiations can offer the opportunity toWT/TPR/OV/5
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"multilateralize" the benefits of regional trade agreements, when these are ripe for such action;  given
the overlapping membership of regional agreements with the WTO, multilaterally agreed trade pacts
also benefit regional trade.  However, to ensure that the appropriate balance is maintained between
these two main avenues for liberalization, the WTO needs to find more effective methods of
examining and monitoring regional trade agreements.
27. Recent Trade Policy Reviews confirm that despite raising protectionist pressures, the
momentum for trade liberalization, combining multilateral initiatives, regional agreements, and
unilateral trade reforms, has overall been maintained.  Trade liberalization measures have been
undertaken by some countries throughout all regions.  For example:
• The financial turmoil notwithstanding, the general thrust of Asian countries' trade and investment
policies has been liberalization.  While some countries directly affected by the crisis raised sometariffs, the overall trend remains downward.  Some countries in the region have continued to
pursue their traditionally open trade policies, while further liberalization measures wereimplemented by countries such as Indonesia, Korea, the Philippines and Thailand.
• In Japan , growth was negative in 1998;  domestic demand was weak and a decline in import
volume contributed to the difficulties of emerging market economies in the region.  Despite its
economic difficulties, Japan implemented its trade liberalization agreed in the Uruguay Round
ahead of the original timetable;  it is also in the process of implementing structural reforms,
particularly in the banking sector.
• In spite of domestic pressures to limit import competition, the financial crisis in Asia has not
materially changed Australia 's policy of openness and commitment to structural reform.  There
has been a recent slowdown in tariff liberalizati on, however, and an increase in export assistance.
• The strong sustained growth of the United States  economy provided a supportive external
environment for recovery from the crisis.  Since the outbreak of the financial crisis in Asia,growth of the U.S. economy has continued to be  strong – reaching almost 4% annually in 1997
and 1998;  strong growth has been accompanied by the lowest levels of unemployment andconsumer price inflation since the 1960s.  Trade and investment liberalization has contributed to
this trend.  Imports have provided a safety valve, helping to satisfy domestic demand.  A large and
growing current account deficit, which reached a record level of US$233 billion in 1998, has
enabled the U.S. economy to sustain its strong rate  of growth in the face of domestic constraints.
In their review of U.S. trade policies, participants in the TPRB noted that  the U.S. currentaccount deficit reflected the gap between national saving and domestic investment, which had
widened since 1995.  Contrary to popular perceptions, national saving has been rising in the
United States;  the sharp decline in household savings has been more than offset by stronger
corporate saving and the shift from a fiscal deficit to surplus.  An additional source of funds for
domestic investment has been capital inflows from abroad;  the shortfall of national savingsrelative to domestic investment was made up by foreign investors who have continued to be
drawn to the United States by its liberal investment regime, profitable investment opportunities,
and its attractiveness as a safe haven following the Asian financial crisis.
• On the other hand, the widening current account deficit has provoked allegations in the
United States that some foreign producers are engaging in "unfair" trading practices to the
detriment of domestic producers.  Such allegations have, in turn, led to protectionist pressuresfrom some sectors, aimed at persuading the Government to implement trade remedy measures to
curb imports of some products from specific countries;  by and large, the Administration has
resisted such pressure, much to the benefit of the multilateral trading system.WT/TPR/OV/5
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• As part of its outward-oriented trade and investment strategy, Canada  is pursuing reform on an
autonomous basis – notably lowering inter-provincial barriers to trade – and is an activeparticipant in regional integration initiatives.  In  addition to its solid support of the multilateral
trading system, Canada has forged preferential links with other partners such as Chile, Israel, and
EFTA.  It is also actively participating in broader schemes such as APEC and the FTAA.
• Growth in the economies of the Member States of the European Union  (EU) is also playing an
important role in the adjustment to the Asian financial crisis, although growth in 1998 was
considerably slower than in the United States (2.8% compared with 3.9%).  For 1999 and beyond,
the introduction of the Euro on 1 January 1999 in the 11 countries involved in the European
Monetary Union (EMU) could provide an impetu s to growth and boost demand for imports from
non-EU countries.  Should such growth materialize in the EU, it would facilitate the adjustment of
the emerging market economies, as well as neighbouring transition economies.
• In Latin America and the Caribbean , the move towards an increasingly open trade and
investment regime has, by and large, continued.  This is partly the result of autonomous measuresand regional initiatives, such as MERCOSUR, the Andean Community, the Central American
Common Market, and CARICOM.  Some countries, however, have become relatively important
users of contingency protection such as anti-dumping measures.
• In the case of Brazil , here again, foreign investors experienced a sudden shift of market sentiment
against a country with weak external and fiscal balances, maintaining a fixed exchange rate as anexternal anchor for internal price stability.  Brazil moved to a floating exchange rate regime in
January 1999, and the subsequent 30% depreciation of the real against the dollar has increased thecost of imports and improved Brazil's external competitiveness.  Repercussions are anticipated for
Brazil's partners in MERCOSUR, given the depth of intra-regional trade, which accounts for
some 20-30% of imports and exports for each regional partner.  For Argentina, in particular,
whose currency is fixed at parity to the U.S. dollar, the depreciation of the Brazilian real has led
to some protectionist pressures.  The TPRB found that Argentina's macroeconomic discipline andwide-ranging structural adjustment, including significant trade liberalization, had created a
basically sound economy, boding well for its capacity to adjust.
• Bolivia  highlights the benefits of a 10% uniform tariff regime in terms of its predictability,
transparency and promotion of an efficient allocation of resources.  The Trade Policy Review ofNicaragua  noted the restructuring of the customs tariff to converge progressively to levels agreed
within the Central American Common Market (CACM) so as to comply with WTO bindingcommitments and to implement a unilateral reduction plan (1997-2002);  hitherto, this process has
contributed to a considerable decrease in the average MFN tariff rate.  Nicaragua is also making
efforts to update and expand its legal framework for the protection of intellectual property rights.
• In the Caribbean , Jamaica and Trinidad and Tobago, the two most populous members of the 15-
member CARICOM, have undertaken substantial liberalization following implementation of
CARICOM's common external tariff (CET).  In 1992, the CARICOM agreed to reduce the
maximum tariff on industrial products from 45% in 1993 to 20% in 1998, keeping the maximum
rate at 45% for agricultural products.  The 20% ceiling on industrial products was implemented by
Trinidad and Tobago in 1998, and Jamaica was to implement the ceiling by January 1999.  Both
countries have also undertaken new commitments on services under Protocol II of the CARICOM
Single Market and Economy (CSME), which is expected to be completed by the end of 1999.
• In Africa , an increasing number of countries are further opening their trade and investment
regimes, in most cases under comprehensive structural adjustment programmes.  These efforts arecomplemented by a revived impetus towards the development of regional integrationWT/TPR/OV/5
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development.  The Trade Policy Reviews of some African countries highlighted these issues as
well as the connection between private sector development and governance, in terms of
transparency, accountability and respect for the rule of law.
28. The developments listed above have been appreciated by all WTO Members.  On the other
hand, there are still a number of long-standing issues of concern to some Members, such as in the areaof market access.  Examples include high tariffs on a large number of products, and the use of specific
duties, which tend to conceal high ad valorem  equivalents.
29. During 1999, regional trade agreements have continued to be at the forefront of trade
liberalization efforts.  The political impetus to increase their number and widen their scope has
increased.  TPRs show that, overall, regional and multilateral trade liberalization have gone ahead side
by side in recent years.  However, there are some important issues that need to be addressed, such as
the gaps between MFN and preferential tariffs, differing regional and international standards,multiplication of rules of origin, and other market-access areas.  Regional initiatives, including
customs unions, free-trade agreements, preferential trade agreements, or other trade-related initiatives,
are present in all regions of the world.  Examples include the following.
Europe
30. The EU's accession negotiations with Cyprus, the Czech Republic, Estonia, Hungary, Poland,
and Slovenia, which opened in December 1997, have continued during 1999.  The Trade Policy
Reviews of Hungary  and Romania focussed on the role of trade policy and price reform in stimulating
market competition in the transition, buttressed by structural reform and macroeconomic stabilization.
Following the Europe agreements and CEFTA, trade reform advanced in the WTO with commitments
on tariff bindings, as well as market-opening for telecom and financial services.  Reform is nowgeared mainly to the transposition of the body of  EU "acquis communautaire", which might, in some
instances, such as agriculture, lead to a less liber al trading regime.  Hungary has been very successful
in attracting foreign investment to modernize its capital base and the provision of services, and trade
with the EU has flourished.  Romania, in contra st, has had some difficulty in carrying through on
structural reform, and is not in the "first wave" of EU applicant countries.
31. Turkey also illustrates the extent to which trade reform can be driven by regional
commitments.  The customs union with the European Union, which entered into force in 1996, gave a
new impetus to the liberalization process, taking Turkey beyond its Uruguay Round commitments in
many instances.  Turkey has adopted the EU's comm on external tariff (CET) for most industrial goods
and for the industrial component of processed agricultural goods;  legislation in a large number of
trade-related areas has been harmonized with the EU  "acquis communautaire".  Turkey, Hungary, and
Romania are expanding their networks of preferential trade agreements to encompass regional tradepartners and countries with which the EU has concluded trade agreements.
32. Under the Euro-Mediterranean free-trade area initiative "new generation" bilateral free-trade
agreements have been concluded between the EU and Israel, Jordan, Morocco, and Tunisia, as well as
an agreement between the EU and the Palestine Liberation Organization (PLO) on behalf of the
Palestinian Authority in the West Bank and Gaza Strip.  Negotiations are on-going between the EUand Algeria, Egypt, Lebanon, and Syria, respectively.  Information gathered for the 1999 Trade Policy
Review of Israel also indicates an expansion of the network of preferential agreements between
Mediterranean partners.
33. Following up on the cross-regional integration initiative, launched by the EU to establish
closer political and economic ties with Latin America and the Caribbean, framework agreements withthe objective of reciprocal trade liberalization were concluded with Mexico, MERCOSUR, and Chile.WT/TPR/OV/5
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The Americas
34. Linking Latin America and the Caribbean with North America, the initiative to create the
Free-Trade Area for the Americas (FTAA) by 2005 was announced in December 1994 at the (First)
Summit of the Americas, in Miami.  The negotiati ons for an FTAA were formally launched in April
1998 at the (Second) Summit of the Americas in Santiago, Chile.  The negotiations, aimed atprogressively eliminating barriers to trade in goods, services and investment, are to be concluded no
later than 2005.  It is expected that the outcome of the negotiations will be a "single undertaking", and
that the FTAA negotiations will "improve on WTO rules and disciplines wherever possible".
35. The Trade Policy Reviews of Argentina and Uruguay, two of the four members of
MERCOSUR, featured the changes in MFN tariffs du e to the required convergence with the Common
External Tariff by 2006;  for Argentina, this process will bring a modest decrease in the average MFN
rate from 13.5% in 1998 to 11.1% in 2006, but for Uruguay, the reverse may be true.  Argentina andUruguay confirmed that the additional temporary 3% increase of the CET agreed among
MERCOSUR members on 31 December 1997, prompted in part by the deterioration of Brazil's
current account and budget deficit, will be eliminated on schedule by 31 December 2000.
Asia and the Pacific
36. In the wake of the Asian crisis, members of  the Association of South-East Asian Nations
(ASEAN) accelerated trade liberalization within the ASEAN Free-Trade Area (AFTA), adopted fiscal
incentives for all investors, created the ASEAN Investment Area to provide national treatment to
ASEAN investors in the manufacturing sector, launched a round of liberalization negotiation on
services, and introduced a long-term Action Plan to promote economic recovery among the members.
On the Common Effective Preferential Tariff (CEP T) of AFTA, each of the six founding members
agreed to achieve a minimum of 85% of the tariff lines of its Inclusion List in the 0-5% range by
2000, covering 90% of intra-ASEAN trade.  They also brought forward from 2003 to 2002 the date of
implementation of the CEPT on all items in the inclusion lists.  The Trade Policy Review of
Indonesia, in 1998, noted that the reductions in the CEPT and MFN rates have proceeded in parallel,
so that the margin of preference for regional suppliers has remained relatively modest.
37. According to the "Bogor D eclaration", the Asia-Pacific Economic Cooperation (APEC)
framework aims at "open" trade and investment regimes in the region (that is, whose benefits are
available to all trading partners), by 2010 for industrialized economies and no later than 2020 for
developing economies.  APEC is working in several directions to this end, based on the principle of
voluntary participation – Individual Action Plans;  the identification of sectors for early and voluntary
liberalization (EVSL);  and Collective Action Plans (CAPs) on measures of investment and trade
facilitation.  EVSLs for 15 product categories, comprising tariff elimination, reduction of non-tariffbarriers, trade facilitation, and economic and technical cooperation, are on the APEC agenda.  The
first (non-tariff) action under an EVSL was approved in June 1998;  it entails a framework to
conclude mutual recognition agreements  for conformity assessment of telecommunication equipment,
which is expected to facilitate and expand tr ade flows of such equipment in the APEC region,
currently estimated at US$45 billion annually.
Africa
38. During the past two decades, countries in Africa have attached increasing importance to
regional cooperation and integration initiatives to develop a viable internal market and industrial base,
thereby fostering investment in the region and lifting the isolation of land-locked economies.  Such
initiatives have been either entirely new or revitalized long-standing regional integration efforts.  Anew impetus to the development of regional integration bodies has also resulted from the tradeWT/TPR/OV/5
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arrangements proposed by the EU for a successor to the Lomé Convention, which envisages Regional
Economic Partnership Agreements with groupings of ACP countries.
39. Progress of the Southern African Customs Uni on (SACU), the oldest regional organization in
Africa, was featured at the Trade Policy Reviews of SACU members, as a group (Botswana, Lesotho,
Namibia, South Africa, and Swaziland).  Under the SACU Treaty, members apply to imports into theUnion the same duties and taxes set by South Africa.   SACU is part of the wider grouping of the
Southern African Development Community (SACU members plus Angola, the Democratic Republic
of Congo, Malawi, Mauritius, Mozambique, Seyche lles, Tanzania, Zambia, and Zimbabwe), which
intends to implement a free-trade area by 2000.  The Common Market for Eastern and
Southern Africa (COMESA), which stretches from Egypt to Swaziland, also hopes to establish a
free-trade area by October 2000.
40. Substantial progress towards regional integration has also been made within the West African
Economic and Monetary Union (WAEMU), featured at the Trade Policy Reviews of Burkina Faso,
Mali, and  Togo (other WAEMU members are Benin, Cô te d'Ivoire, Guinea-Bissau, Niger, and
Senegal).  Building on long-standing ties betw een members of the CFA monetary zone, WAEMU
established a monetary union in 1994, and intends to achieve a variety of other goals, including the
convergence of fiscal policies, and a common market.
41. The countries that are members of WAEMU are also members of ECOWAS, established in
1975 as the general regional organization for the 17-country subregion of West Africa.  One member
of ECOWAS, Nigeria, was reviewed in 1998 and another member, Guinea, was reviewed in 1999.
Although the two regional agreements overlap, EC OWAS members agree that, in the long term, it
will be the only regional agreement in West Africa, fast liberalization under WAEMU will contributeto such an integration.  With respect to deve lopments in ECOWAS, the reviews of Nigeria and
Guinea indicated delays in the implementation of the agreed tariff reduction commitments on
intra-member trade, and in the establishment of a common external tariff, originally planned for 2000.
T
HE LEAST -DEVELOPED COUNTRIES IN THE WTO
42. The 48 least-developed countries as a whole are the poorest in the world, representing 12% of
the world’s population but less than half of one percent of world trade.  Twenty-nine LDCs are WTO
Members and six are applicants for accession.  For many LDCs, domestic economic activity is
focussed principally on subsistence agriculture, trade accounting for 9% to 16% of GDP compared
with about 25% for developing countries as a group.  This relatively low level of integration of LDCs
suggests difficulty in achieving growth benefits through trade, a declared objective of LDCs and
supported by all WTO Members.  Following the Uruguay Round "Ministerial Decision on Measures
in Favour of Least-Developed Countries", WTO Members agreed at the Singapore Ministerial, in1996, on a Plan of Action and an integrated approach between the WTO and other concerned
international institutions to provide the technical assistance necessary to meet the internal and external
trade policy objectives of LDCs.
43. There is a growing consensus among the least-developed countries that, irrespective of the
underlying causes of each one's difficulties in achieving growth on the basis of outward-orientedpolicies, two basic dimensions must be addressed by LDCs and their trading partners.  One is the
removal of barriers to market access for LDC products, an essential condition for the trade growth and
consequent development of LDCs.  Tariff and non-tariff barriers vary considerably between
destination markets;  WTO Members therefore have an important role to play in this regard.
However, the capacity of LDCs to effectively use the market-access opportunities available to them isalso strongly affected by, and linked to, domestic s upply-side and policy constraints.  LDCs therefore
recognize the significance of their own efforts to establish a supportive domestic environment.  The
role of the WTO Secretariat and other concerned institutions is to support policy-makers in LDCs,WT/TPR/OV/5
Page 11
bring them into closer touch with the opportunities available for an outward-oriented growth strategy
in the world economy, and enhance their participation in the multilateral trading system.  Following
the High Level Meeting on Integrated Initiatives for Least-Developed Countries' Trade Development,
held in October 1997, this role was given substance in the Integrated Framework linking the WTO
with UNCTAD, ITC, IMF, the World Bank, and UNDP.
44. The Plan of Action invited WTO Members to act, both on their own and collectively, to
enhance market access for products of export interest to LDCs.  Such actions could, for example, take
the form of use, on an autonomous basis, of special provisions in the WTO Agreements for benefits to
LDC suppliers;  early implementation of trade liberalization commitments on products of export
interest to LDCs;  or measures of preferential access under GSP or GSTP programmes.  To date,
WTO Members have notified new measures of preferential access – Canada, Egypt, the European
Communities, Mauritius, Switzerland, Turkey, and the United States – or liberal access conditionsunder existing programmes – Australia, Bulgaria, Canada, Hungary, Japan, and Norway.  Preferences
given by developing countries to LDCs are exem pted from the most-favoured-nation obligation until
2009, under a waiver by the WTO General Council.  The objective of binding zero-tariff access on
products of export interest to LDCs is currently under consideration by WTO Members.
45. To launch its participation in the Integrated Framework, the LDC first identifies, on the basis
of a questionnaire, the elements of its trade policy, including difficulties of compliance with WTO
agreements, major supply-side constraints on export-led growth;  and related technical assistance
needs.  Technical assistance is provided to build or enhance human resources and institutional
capacities, provide trade information and trade-related legal support, and improve supply capacities.
As of mid-1999, such needs assessments and responses had been completed for 40 LDCs, includingall 29 LDC Members of the WTO, applicants requesting membership, and LDCs considering making
such a request.  The next step is for each country to  prepare a trade-related meeting to which it invites
the development partners of its choice (including but not limited to the six agencies of the Integrated
Framework) to endorse a multi-year programme of trade-related assistance.
46. To enhance the value of the technical assistance available, a tighter connection could be
established between the Integrated Framework and the Trade Policy Review exercise, which also
involves an identification and economic evaluation of the trade and trade-related policies of the
country under review.  Out of the 29 LDCs that ar e currently WTO Members, trade policy reviews
have so far covered ten LDCs (Bangladesh, Benin, Burkina Faso, Guinea, Lesotho, Mali, Uganda,
Solomon Islands, Togo, and Zambia), and Tanzania is up for review in 2000.  The Trade Policy
Reviews conducted in the past year – Burkina Faso, Guinea, Mali, the Solomon Islands, and Togo –
reveal the heavy reliance of LDCs on revenue collected at the border to finance governmentprogrammes.  A high and variable structure of tariffs and other trade taxes collected at the border
creates an anti-export bias by protecting domestic industry behind tariff walls, draining the export-
oriented sector of resources, and raising the cost of production based on imported inputs.  This heavy
reliance on revenue collected at the border, linked to delays or difficulties in establishing a broad
domestic tax base, raises difficult policy issues in many countries;  it may be invoked by LDCs as anobstacle to trade liberalization, even if the benefits of removing trade distortions are appreciated.
LDCs could still secure gains by establishing a more uniform tariff structure – bound in the WTO to
reduce uncertainty – and eliminating specific tariffs to rely only on ad valorem  rates.  Tariff
uniformity would also be desirable on the grounds of transparency and administrative simplicity.
47. LDCs also stand to gain from implementing their customs policy in a transparent and
predictable manner, administered efficiently by tr ained customs personnel.  Currently, most LDCs use
the Brussels Definition of Value rather than the WTO Customs Valuation Agreement, whose
implementation by a developing-country Member is to take effect, in principle, no later than five
years after entry into force of the WTO Agreement for that Member.  Although implementation may
have a potentially adverse effect on revenues (due to the lower valuation that results from a tighterWT/TPR/OV/5
Page 12
definition of permitted deductions under the Agreement), such effects must be balanced against the
enhanced transparency, predictability, and ease of administration of customs valuation.  Most LDCs
have identified, in their needs assessments, implementation of the Agreement and the training of
customs personnel to apply the new system.  Most  missions undertaken by the WTO to LDCs have
addressed the issue of customs valuation, and the World Customs Organization is providing technicalassistance on training personnel and examining selected problems of specific concern to developing
countries.
48. The responses to the questionnaire on supply-side constraints identify numerous obstacles to
trade expansion.  Some are inherent – 16 LDCs are landlocked and transport-related costs of trade are
significant.  Others are subject to change, includi ng high costs of inputs (finance, imported products,
energy, transportation charges), a poor quality infrastructure, and gaps in trade information.  Judging
from the Trade Policy Reviews of LDCs conducted in the past year, significant obstacles to an
outward-oriented growth path include, in addition to high and variable tariff and taxes assessed at the
border, impediments to investment such as the lack of infrastructure, and relatively high costs for key
basic services, notably energy, finance, transportation, and telecommunications.  Private sector
participation could improve efficiency and reduce the prices of these services, which are essential
inputs for other sectors of the economy.  Poor infrastructure and relatively expensive basic servicestend to impair export competitiveness and deter foreign investment, thereby hampering development
and growth.  While some of the LDCs reviewed do offer tax and non-tax incentives in an effort to
attract foreign investment, there are strong grounds for doubting the effectiveness of such measures,
based on evidence from other economies.
49. Many LDCs also identify very limited access to information on export development
opportunities as an obstacle.  Such information is costly for small and medium-sized enterprises to
acquire individually, and its collection and dissemination by a government agency therefore provides
positive externalities.  This need can be met by establishing a "trade point" to enable companies to
access such information and to provide supporting services for enterprises to take advantage of
opportunities.  The ITC and UNCTAD have available a trade database on CD-ROM (TRAINS), theUNDP has experience in export development progra mmes in LDCs, and the World Bank can provide
assistance to identify bottlenecks to trade financing.  Building on such information, specific projects
may be developed by the private sector on the basis of market evaluation studies.
50. In addition, unlike other WTO Members, includ ing most developing countries, few LDCs
have the human and financial resources to adequately participate in WTO activities.  Access to
information is therefore a vital element in reducing the distance between Geneva, where the WTO's
activities take place, and the capitals of LDCs.  Advances in communications technology havepermitted the WTO to provide better communication and information links to LDCs.  In response to
requests received through the Integrated Framework, the WTO Secretariat has begun a programme to
install computers and Internet links in the trade or commerce ministries of all LDCs.  By mid-June
1999, thirty-eight least-developed countries had received Reference Centres (all 29 LDC Members
plus nine Observers).  The Secretariat has also brought trade policy officials to Geneva to participatein training sessions on trade negotiations.  These new information linkages between the WTO and
LDCs, as well as training, are especially important in the context of the WTO work programme to be
discussed at the forthcoming Seattle Ministerial.
51. A "Geneva week" of briefings on WTO activities was scheduled for early November 1999 for
those developing countries, especially LDCs, Members and Observers that do not currently havepermanent representatives in Geneva.WT/TPR/OV/5
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III. WTO ACTIVITIES
52. The main focus of WTO activities in 1999 concerned preparations for the 3rd Ministerial
Conference, in Seattle, the appointment of a new WTO Director-General, and dispute settlement.  The
WTO also organized a number of symposia and seminars, including the high-level symposia on tradeand environment, trade and development, and information technology, and seminars on trade and
competition policy, trade facilitation, and regional trade agreements.
53. Details of WTO activities are spelled out in Chapter V of the Annual Report and
complemented by the various Council and Committee reports to the WTO General Council.  This
section, therefore, focuses on the most prominent activities of the WTO during 1999.
54. One of the General Council's main priorities was the preparation for the 1999 Ministerial
Conference.  In September 1998, the General Council conducted a Special Session in pursuance of the1998 Ministerial Declaration's requirement that a process be established under the direction of the
General Council to ensure full and faithful implementation of the existing agreements, and to prepare
for the 3
rd Session of the Ministerial Conference.  It agreed on a schedule of both formal and informal
meetings of the General Council.  By August 1999, more than 135 different proposals had been
circulated to WTO Members.  Proposals concerne d the following subject areas:  implementation of
individual WTO agreements, mandated negotiations, future work already provided for in existing
agreements, the programme of work initiated in Singapore in 1996, proposals relating to follow-up
work on issues raised at the High-Level Meeting for LDCs in 1997, and proposals relating to other
subjects of interest to WTO Member governments.  Members began the third and final phase of their
preparations for the Ministerial in early September and held additional informal and formal sessionsin October and early November.
55. The General Council also considered several matters relating to the question of improving
transparency in WTO work.  Among these were a review of the procedures for the circulation and
derestriction of WTO documents, and the granting of observer status to international
intergovernmental organizations.  Supplementary guidelines agreed in July 1999 should facilitatedecisions on the granting of observer status, and thus contribute to improving transparency in the
organization's work.  In June 1999 it agreed on procedures for the attendance of non-governmental
organizations at the 1999 Ministerial Conference.
56. The Kyrgyz Republic and Latvia acceded to the WTO in 1999.  The General Council also
adopted the accession protocols for Estonia and Georgia, which are expected to become Members of
the WTO upon completion of their internal ratification procedures.  The desire to join the WTO as
soon as possible has received wide support from WTO Members who are committed to acceleratingthe accession process to the maximum extent possible on the basis of meaningful market-access
commitments and the acceptance of the rules and disciplines of the WTO system.  In July 1999, the
General Council agreed that acceding governments be invited to attend, as observers, the preparatory
meetings for the 1999 Ministerial Conference.
57. Between 1 August 1998 and 31 July 1999, the Dispute Settlement Body (DSB) received
39 notifications of formal requests for consultations under the Dispute Settlement Understanding
(DSU).  During this period, the DSB established panels to deal with 17 new matters and received
requests to establish a panel in three other cases.  It adopted Appellate Body and/or panel reports in
eight cases.  The DSB also received two notifications of mutually agreed solutions (settlements).  In
1999, the DSB agreed for the first time to allow a WTO Member to take retaliatory measures againstanother Member because of the latter's failure to implement Panel and Appellate Body
recommendations concerning import measures for trade in bananas.  Later in the year, the DSB
allowed two Members to take retaliatory measures against another over trade in hormone-treated meat
products.WT/TPR/OV/5
Page 14
58. A review of the Dispute Settlement Understanding by the DSB began in early 1998.  The
Ministerial Conference was to complete a full review of the dispute settlement rules and procedures
under the WTO within four years after the entry into force of the Agreement Establishing the WTO.
The main issues under discussion were:  a proposal to clarify the procedures for deciding whether
there has been compliance with a panel/Appellate Body ruling and for authorizing retaliatorymeasures if there has not been compliance;  a proposal to extend the rights of Members who are third-
parties to a dispute;  a proposal to increase the transparency of the dispute settlement system;  and
several technical amendments to the DSU.
59. As part of its follow-up to the 1998 Ministerial Declaration, the General Council established
in September 1998 a comprehensive work programme to examine all trade-related issues relating to
global electronic commerce, and discussed the issue of electronic commerce throughout 1999 at each
of its regular meetings.  The Work Programme on Electronic Commerce called on the Council forTrade in Services, the Council for TRIPS, the Council for Trade in Goods, and the Committee on
Trade and Development to examine and report on issues related to their field of work arising in
connection with electronic commerce.  Each body sent a progress report to the General Council in
July 1999.
60. On 14 December 1998, the Council for Trade in Services adopted the Disciplines on
Domestic Regulation in the Accountancy Sector , which have been developed by the Working Party on
Professional Services.  The disciplines are to be applicable to all WTO Members who have scheduled
specific commitments for accountancy under the GATS.  This is the first step in the development of
GATS disciplines on the domestic regulation of services.  The Council for Trade in Services has also
started sectoral discussions focusing on the manner in which different services are traded andregulated with a view to identifying negotiating issues  and priorities.  So far, the exercise has covered
postal and courier services, audiovisual services, construction and engineering services, distribution
services, legal services, architecture and engineering services, computer and related services,
environmental services and advertising services.
61. In the Committee on Trade in Financial Services, the 52 governments that participated in the
negotiations agreed to implement the results of the financial services agreement as of 1 March 1999.
They also agreed to extend, until 15 June 1999, the deadline for accepting the protocol in order to
allow another 18 governments more time to complete their domestic ratification procedures.
62. The WTO organized a number of symposia and seminars in 1999.  A High Level Symposium
on Trade and Environment was held on 15-16 March 1999.  The symposium considered:  linkages
between trade and environment policies;  synergies between trade liberalization and environmental
protection, sustained economic growth and sustainable development;  and interaction between tradeand environment communities.  The issue of trade and environment was also covered in a WTO
Secretariat's Special Study, published in early October 1999, which argued that trade liberalization
reinforced the need for environmental cooperation at the national and international levels.
63. A High Level Symposium on Trade and Development, held on 17-18 March 1999,
considered:  the linkages between trade and development policies;  trade and development prospectsof developing countries;  and further integration of developing countries, including the
least-developed countries (LDCs), into the multilateral trading system.
64. A Symposium on Information Technology was held in July 1999 to provide an interface
between IT industry representatives and trade policy officials.  Other aims of the symposium were to
share information about the dynamism of IT and its future, to explain the role of IT in promotingeconomic growth and development, and to highlight th e value of the application of IT.  Issues related
to Trade and Competition Policy were also discussed at a symposium organized in April 1999 by the
WTO Secretariat in cooperation with UNCTAD and the World Bank.WT/TPR/OV/5
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65. In March-April 1999, the WTO and the World Bank sponsored an on-line forum on
regionalism.  The two institutions placed a number of papers on a joint website created for the forum,
and answered questions about regional trade agreements.  On 30 June 1999, under the coherence
mandate, the WTO held a Seminar on Regional Trade Agreements with the participation of staff of
the World Bank and the IMF.  Two other seminars were organized in cooperation with the WorldBank and the IMF in September and October.  These seminars were part of the "coherence" agenda
and comprised:  "Developing Countries' Interests in a Millennium Round" and "Agriculture and the
New Trade Agenda from a Development Perspective:  Interests and Options in the Next WTO
Negotiations." A one-day seminar on "Special and Differential Treatment in the WTO" was held on
23 October 1999.
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