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India & WTO

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GK / General awareness is a must for cracking MBA entrance exams hence, MBARendezvous.com -India's content lead MBA website  has started series of articles to equip MBA aspirants with general awareness with the hope that you would get success in various MBA entrance exams.

Following article on” India  & WTO” is part of our series on general awareness:  
World Trade Organization (WTO) came into being on January 1 Uruguay Round, 1995 as result of Uruguay round of General Agreements on Tariffs and Trade (GATT) to establish multilateral trade system.  The Uruguay round was the 8th round of Multilateral trade negotiations (MTN) conducted within the framework of the) (GATT), spanning from 1986 to 1994.
 
The WTO provides a forum for negotiating agreements aimed at reducing obstacles to international trade and ensuring a level playing field for all, thus contributing to economic growth and development. The WTO also provides a legal and institutional framework for the implementation and monitoring of these agreements, as well as for settling disputes arising from their interpretation and application. 
 
GATT was signed by 23 countries in 1947. India was one of the founder members of GATT. Over the years the membership of GATT swelled in 1994 touched 118 countries. GATT was along concerned with the promotion of international trade through tariff reduction doing away with non discriminatory practices among trading partners, and evolving rules to counter protectionism. The guiding principle of GATT was what is known as the MFN (most favored nation) clause. This clause says that” any advantage, favour priviledge or immunity granted by a contracting party to any product originating or in destined for any country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all contracting parties.” MFN clause is an important attribute of WTO also. The purpose of this clause was to discourage bilateralism and multilateralism so that the world trade could expand in an orderly manner. However formation of customs or free trade area was allowed by GATT provided this encouraged flow of trade between the constituent territories and did not raise barriers to the trade of other member nations.
 
In all, eight rounds of multilateral trade negotiations (MTNs) were held under the auspices of GATT: first in Geneva (Switzerland) in 1947; second in Annecy (France) in 1949; third in Torquay (UK) in 1950-51; fourth fifth and sixth in Geneva (Switzerland) in 1956, 1960-61 and 1964-67 respectively; seventh in Tokyo (Japan) in 1973-79, and 1986-1994. Known as Uruguay round  the eight round  took more than eight years of complex negotiations as considerable differences  existed among the  members nations on the various issues  under discussion like  the questions of agricultural subsidies, Multi Fibre Arrangement , market access, trade in services  anti dumping  intellectual property rights etc. Because of the substantial differences  among member nations on these contentious issues, the then Director General of GATT, Aruthur Dunkel came up with a Draft Final Act , embodying what he thought could be the agreed outcome of the Uruguay Round. This was offered as a single treaty i.e.  In a forum of package – no elements of the treaty could be considered as agreed unless the total package was agreed. On April 15 1994 the Final Act known Dunkel Draft was approved and signed and it paved the way for setting up of World Trade Organization (WTO). The GATT was not an organization but merely a legal arrangement while WTO is an internationally institutionalized set up with permanent organization and secretariat and is designed to play a role in the spheres of trade in goods, trade in services, foreign investment, intellectual property rights.
 
Structurally, the highest decision making body in WTO is the Ministerial Conference which meets at least once in two years while General Council is the permanent body consisting of representatives of all members. So far eight meetings of Ministerial Conference had been held. The first Ministerial Conference was held in Singapore known for the launch of work programme for the so called four Singapore Issues-
 
1.) Relationship between trade and investment,
 2.) Interaction between trade and competition policy,
 3.) Transparency in Government Procurement and
 4.) trade facilitation. 
 
Fourth Ministerial Conference was held in the capital city of Qatar i.e. Doha where the conference adopted the Comprehensive work programme called as Doha Development Agenda (DDA) which launched the negotiations on selected issues and setting time frames for such issues. 
 
The main WTO agreements are Agreement on Agriculture (AoA), Non Agriculture Market Access (NAMA), Trade Related Intellectual Property Rights(TRIPS), Trade Related Investment measures(TRIMS), General Agreement on Services (GATS) and Dispute Settlement Body (DSB).
 
Agreement on Agriculture (AoA) is a measure to liberalise the trade in agriculture sector which also includes the marine products and minor forest produce. This is the most important issue which is main reason behind the failure of successive WTO talks. No consensus on Agreement on agriculture is reached because of the rigid stand of both developed and developing countries. Developed countries are asking the third world countries to open their market for the primary products of the developed countries but before granting the access to such products of developed world, developing countries are asking the first world countries to reduce the subsidies which they provide to their farmers. Because of these subsidies, the price of agri-products of developed countries is much lower than the price prevailing in the markets of developing countries.
 
If agri products of developed countries are provided free access to the markets of developing countries, it is quite possible that such products will harmfully affect the income of the local producers. Since in most of the third world countries, agriculture is the most significant source of livelihood, developing countries are averse to risk the livelihood of their poor population due to the competition from the artificially low priced products of developed world due to subsidies. Therefore consensus of agriculture cannot be reached till there is a substantial reduction in the agriculture subsidies (also called Aggregate Measure of Support or AMS in WTO jargon).
 
Another controversial issue delaying the agreement is NAMA i.e. non agriculture market access which is to develop trade in the industrial goods. Here the point of contention is the modalities for the reduction of duties in the developing and developed countries. During the sixth Ministerial conference at Hong Kong in 2007, initially, there was a consensus on swiss formula as modality for reduction in the duties in developed and the developed countries but later at general meeting in Geneva, consensus could not be reached. Another issue under NAMA is the special and differential treatment (SDT) under which developing countries ask for differential treatment and adequate safeguards in the event of overflow of imported goods.
 
Agreement on TRIPS, TRIMS has already been reached and since 2005, all the members of WTO had ratified TRIPS in there respective countries. Further all nations had also agreed to not to discriminate between the foreign and domestic investment which is the requirement of TRIMS agreement. General Agreement on Trade in Services (GATS) calls for a similar agreement for trade in services and since January 2000, they have become the subject of multilateral trade negotiations but negotiations on GATS are yet to be launched at full scale however 4 modes of services have been identified viz.
 
Mode 1 : Cross Border Supply of Services
Mode 2 : Consumption Abroad
Mode 3: Commercial presence
Mode 4: Presence of natural persons.
 
Eighth Ministerial Conference of WTO
 
Eighth Ministerial Conference of WTO was held in Geneva in December 2011 at Geneva, Switzerland however the World Trade Organization wrapped up its ministerial meeting without deciding how to revive global commerce talks, focusing instead on welcoming Russia to the fold and securing a government-procurement accord. Efforts to reach an agreement during the Doha Round of trade talks have been blocked for years as the countries fail to make concessions on lowering agriculture subsidies and industrial tariffs. The highlights of the three-day ministerial meeting that began in Geneva on Dec. 15 were the accessions of Russia, Samoa and Montenegro and a 42-nation agreement that opens up government-procurement contracts valued at as much as $100 billion to more foreign competition.
 
 India and WTO
 
WTO provides immense opportunities as well as challenges for India. As far as opportunities are concerned, it opens up the global market for Indian goods. Once agreement on agriculture comes into force, it will open the world markets for the products of Indian farmers. Since more than half of Indian workforce is dependent on agriculture for its livelihood, increase income through increased trade will increase the agriculture GDP of the country thus increasing the income of the most vulnerable sections of the society. Further Agreement on Textiles and Clothings gives immense opportunities for Indian textile sector which is the most important foreign exchange earner of the country. Duty reductions in developed countries in the industrial goods under NAMA will further increase the revenue of India Incorporation. Service sector contributes to more than 50 percent of Indian GDP and therefore importance of GATS for India is second to none.
 
Along with the opportunities, there challenges also which had to be faced in the event of opening of Indian markets for the foreign goods. Indian industry had to increase its productivity to face the competition from the global MNCs. Further, infrastructure bottlenecks in the country may prove hurdles in the productivity enhancement of Indian industry. In agriculture sector, undoubtedly, WTO agreement may increase the income of most vulnerable sections of the society but it also poses a threat for food security in the country as the move may escalate the food prices in India. As far as multi fibre agreement is concerned, if hurdles in the growth of textile sector are not removed within a short span of time, most of the benefits about in incur due to opening up of the markets of US and EU may be garnered by the Chinese and Bangladeshi industries. Therfore it is expedient for India that while pushing for suitable agreement in WTO, it must agressivilely develop its infrastructure otherwise dividends promised by WTO may turn into a nightmare.
 
WTO agreement is considered by the experts as the most important trade agreement of 20th century and since this is the most significant agreement, all the partners must endeavor to make this most significant agreement a success while giving a due attention to the domestic as well as external concerns. 16 years had passed since the establishment of WTO and now direct talks have also been put on back burner. The need of hour for the members is to come forward with some acceptable parameters for further negotiations and talks must be resumed as soon as possible since no agreement is possible if there are no talks.  
 
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