Essay on World Trade Organization (WTO) and India!
It was in 1995 that a World Trade Organization (WTO) could be set up following one of the agreements of the Uruguay round of the multilateral trade negotiations (MTNs) of GATT. India was one of the founding members of the WTO. It started with 128 Member States which over time increased to 159 by March 2013. Further, 24 more countries were currently negotiating their WTO membership. The latest who joined the WTO were Tajikistan on 2nd March 2013 and Laos on 2nd February 2013.
Essay on the Role of GATT in Trade Liberalization:
Despite being a temporary arrangement and loosely structured, the GATT made a significant contributing in liberalizing trade in goods during its existence. Since its inception in 1947, it has carried out as many as eight rounds of successful MTNs, a summary of which is presented below in Table-19.1.
The table reveals that:
i. The first round of MTNs begun in 1947 while the last (the eighth) one in 1986.
ii. Number of countries participated in the process grew overtime, just 23 in first round to as many as 123 in the Uruguay round.
iii. As the round proceeds, negotiations became tougher and, hence, more time, was required to conclude the rounds. While the first round completed in just 8 months, the Uruguay round took as many as 87 months to complete.
iv. In terms of coverage, the initial rounds specifically focused on tariff reductions while subsequent rounds, since the Kennedy round, also covered non-tariffs barriers and anti-dumping duties. The coverage of Uruguay round was even wider extending over services, technology and investment as well.
The Uruguay round, which could be concluded only in 1994 instead 1990, after intense negotiation for more than seven years, was till date a most ambitious and comprehensive MTNs round. It passes through many ups and downs. Partly because of oil shocks of the seventies and prolonged world-wide recession, countries became increasingly inward looking.
Further, many developing countries felt that they did not gain as much as they expected from the earlier GATT rounds. It was because of the fact that products subjected to trade liberalization were mostly those in which developed countries had trade interest. Hence, both developed and developing showed less interest in MTNs of the GATT. All these have prolonged the negotiation at the Uruguay round.
Nonetheless finally the round was concluded successfully and brought several newer areas under the GATT framework. In addition to tariff and non-tariff barriers, it concluded agreements on agriculture, textiles, services, technology and, investment. It has also succeeded to some extent in reducing the role of subsidies in international trade. Moreover, it also paved the way for setting up of the WTO.
The last column of the Table-19.1 has shown that all the GATT rounds have paved the way for considerable trade liberalization through reduction in tariff and non-tariff barriers on global trade. They, thus, improved considerably the global trading environment.
However, scope for trade negotiation did not exhaust. For example, so far very little was done in the field of trade in agriculture. Global service trade was still a virgin area. Hence, efforts towards trade liberalization are to be continued under the WTO.
Essay on the Trade Liberalization under GATT Round:
The progress made towards trade liberalization under various GATT rounds, more specifically under the Uruguay round, is briefly highlighted below:
1. Significant Reduction in the Role of Tariffs on Global Trade:
All the rounds of MTNs progressive lowered the tariffs. As a result, many tariff lines are either abolished or significantly lowered. According to an estimate, average tariff level in industrial countries came down from 40% in 1947 to just 3% in 1994, following conclusion of the Uruguay round.
2. Abolition of Quantitative Restrictions:
They also led to abolition of several quantitative restrictions on trade.
3. Textiles and Clothing:
It was one of the major areas that were so far outside the GATT purview. The Uruguay round has brought it under negotiation and a comprehensive Multi-Fibre Agreement (MFA) was concluded. The agreement facilitated trade in these product range to be integrated in phases into the GATT framework. Finally, the entire global trade in textiles and clothing was integrated by Jan. 1, 2005. As such, the trade in textiles and clothing is now governed by the WTO provisions.
The agreement on anti-dumping provided detailed rules defining dumping and measures to prohibit countries from doing so. It has elaborated on anti-dumping investigations by dispute settlement body when a member state makes a complaint against another member state, in this regards. A number such investigations were carried out against the Chinese products which sell globally at a very low price.
5. Trade in Services:
To deal with trade liberalization in services, the GATS was established under the Uruguay round agreements. It initiated its work by classifying all the services under four modes: Cross border trade (mode-1), Consumption abroad (mode-2), Commercial presence (mode-3) and, Presence of natural persons (mode-4).
Subsequently, it initiated measures to liberalize flow of services across countries under each of them. Towards this, developed countries took some kind of market access commitments on 54% of services while developing countries took only to the extent of 17%.
To protect the rights of innovators and to stimulate the flow of technology across countries, the TRIPs (Trade Related Intellectual Property Rights) was instituted. Its provisions provided considerable protection to inventors by including product patent regime (in place of process-patent), trademarks, copyrights, industrial design, geographical indications, and trade secrets under it.
Following this, many developing countries have to change domestic policies. India, for example, replaced its liberal process patent regime from a stiffer product patent regime, which protects newer innovation for as many as 20 years.
Most TRIP provisions, while strengthening protection to technology, have adversely affected the developing countries. For example, it led to a price rise in several high-tech products such as medicines.
Recently in India, a case has been filed by the international publishers in Supreme Court against Photostatting of copyrighted material by university students and the small shopkeepers in the university areas were stopped by doing so. This has seriously hampered the spread of knowledge by way of making higher education expensive.
For investment, the WTO proposed Trade Related Investment Measures (TRIMs) which provides protection to the foreign investment by placing them at par with domestic one. Those provisions impose certain restrictions on government with respect to foreign investment. In a way, the TRIMs provisions restrict government with regard to managing its foreign investment affairs.
Essay on Some Basic Facts on WTO:
The basic facts with regard to WTO can be highlighted as follows:
i. It is a single institutional framework dealing with the regulations governing trade between countries in goods and services, as also technology and investment.
ii. It was established on 1 January 1995 by submerging GATT into it. Contrary to GATT, the WTO was a legal entity.
iii. The WTO headquarter is located at Geneva, Switzerland which is headed by Director General.
iv. Its main responsibility was to deal with all the trade related aspects. Thus, its coverage is very wide – Goods, services, technology and investment which may further widen in future. Issues like, labour law and environmental concerns may come under negotiation.
v. Unlike IMF and World Bank, it provides equal rights to all its Member States. However, decisions are usually taken by consensus. Obviously, this makes negotiations difficult and time consuming.
vi. Further, its basic approach is based on the rules provided in the WTO framework and mostly time bound. Unlike GATT, its agreements are of binding nature.
vii. It is expected to be a fair and transparent set-up which will be safeguarding the interests of all member states.
viii. Its dispute settlement mechanism is much stronger than that in GATT.
Essay on the Objectives of WTO:
The important objectives of WTO include the followings:
1. Fundamental objective of the WTO is to facilitate progressive trade liberalization by way of removing all the kinds of trade barriers, tariff as well as non-tariff ones. It has even addressed the non-trade related issues which might affect trade indirectly, like the use of child labour in Carpet making in India.
2. Eliminating the role of quantitative restrictions in the arena of international trade.
3. Time bound and binding dispute settlement mechanism for a faster resolution of disputes among Member States.
4. Providing arrangement for periodic trade policy reviews of the Member States for coherence in global economic policy making.
5. Cooperating with other international institutions.
6. Its broader objective includes high living standards, full employment and, growth in income of all Member States.
Essay on the Functions of WTO:
Basic functions of the WTO includes:
1. To Oversee Implementation and Administering WTO Agreements:
The most important function of the WTO is to facilitate, administer and implement various WTO agreements/codes.
2. Forum for Trade Negotiations:
Equally important in its role in providing a forum where the Member States can negotiation further trade concessions to enhance the volume of global trade.
3. Handling Trade Disputes:
According to WTO, a dispute arises when a member government believes another member government is violating an agreement or a commitment that it has made in the WTO. In this regard, it is provided that the organization shall administer the understanding on rules and shall provide procedures governing the settlement of disputes.
This is important in view of its large membership, because of which often situations may emerge in which different countries having different understanding of the agreements. At times, a country may feel that its trading partner deliberately circumventing some agreements in its own national interests.
4. Monitoring National Trade Policies:
It will administer trade policy reviews of Member States periodically for greater coherence in global economic policy making.
5. Technical Assistance and Training for Developing Countries:
Its functions also include a provision under which developing countries, especially the least developed ones, will be offered technical assistance for training to their personnel so that they can participate in the WTO activities safeguarding their respective national interests.
6. Cooperation with Other International Organizations:
The organization shall also cooperate with the other global organizations like the World Bank and IMF for a coherent global economic policy.
Essay on the Basic Principles of WTO:
The basic principles of the WTO were much wider and far reaching than that of the GATT.
The principle of non-discrimination includes two elements:
First, Most-Favoured Nation (MFN):
It implies no discrimination across the WTO Member States. It means that if a Member State agrees to a trade concession to another Member State, the same will be automatically extended to all other WTO members.
Second, National Treatment:
It implies no-discrimination between own and foreign products and services which means that once an item crosses the entry barriers it will be treated at par with its domestic counterparts.
It aims at balancing rights and obligations. It proposes reciprocal exchanges of market access commitments which mean that a country willing to seek trade concession in one area from other country has to offer some concession to that country. In short, there are no free riding in trade concessions.
This is contrary to the GATT’s principle of special and differential treatment to developing countries under which such countries used to get tariff concession without reciprocating them.
3. Market Access:
Countries will take market access commitment to boost the size of global trade. Towards it, the WTO will undertake progressive trade liberalization.
4. Fair Competition:
For the sake of fair competition, it prohibits the use of exports subsidies by any country. If the subsidization is found, the countries are allowed to impose anti-dumping or countervailing duties. Thus, it provides a level playing field to all producers and traders from different countries ignoring whether from a developed or a developing county.
Essay on the Structure of the WTO:
The WTO functions with following important bodies:
i. Ministerial Conference
ii. General Council
iii. Sector specific Councils
iv. Dispute Settlement Body
v. Trade Policy Review Body
vi. Textile Monitoring Body
vii. Specific committees and working groups.
At the top of its structure is the Ministerial Conference, the highest decision making authority at the WTO. Each Member State is represented by its Minister of Trade. It meets at least once in two years and takes all the decisions.
Between meetings of the Ministerial Conferences, the day to day affairs of the WTO are handled by three bodies:
1. The General Council
2. The Dispute Settlement Body, and
3. The Trade Policy Review Body.
Interestingly, all these three bodies are the same and called as the General Council. The only difference is that they meet under different terms of reference. Obviously, all the WTO members are members of all the three bodies. They report to the Ministerial Conference.
At the third layer, there are three subsidiary councils, which are sector specific and operate under the guidance of General Council.
i. Council on trade in goods which is also called as Goods Council;
ii. Council on trade in services which is also called as Services Council and
iii. Council on Trade-Related Aspects of Intellectual Property Rights, which is also called as TRIPs Council.
In addition, there are 11 committees under the Goods Council, a few under Services council and two subsidiaries under the DSB as well. The Goods Council also supervises the working of the Textiles Monitoring Body. These sector specific councils look after their respective areas.
In addition, there are six other bodies which report to the General Council. They are known as Committees. They deal with the specific issues such as, trade and development, the environment, regional trading arrangements, and administrative issues.
The administrative matters of the WTO and all its bodies are looked after by its Secretariat which functions under the leadership of its Director General. There are more than 500 staff members in the Secretariat.
Such a structure of WTO is diagrammatically presented in Figure-19.1.
Process of Decision Making under WTO:
The process of decision making at WTO is different from some of the international organizations like, the World Bank and IMF, where voting power of each Member State is determined by its contribution.
At WTO, all member states are equal and decisions are taken by consensus which is reached through persuasion. The decision makers are either the ministers who meet at the Ministerial Conferences or by their ambassadors/delegates who meet regularly in Geneva at WTO headquarter.
So far eight Ministerial Conferences have already held and ninth one has been planned in Bali during 3-6 December 2013.
Details on the concluded Ministerial Conferences are as follows:
1. First — Singapore, 9-13 December 1996
2. Second — Geneva, 18-20 May 1998
3. Third — Seattle, November 30 – December 3, 1999
4. Fourth — Doha, 9-13 November 2001
5. Fifth — Cancun, 10-14 September 2003
6. Sixth — Hong Kong, 13-18 December 2005
7. Seventh — Geneva, 30 November – 2 December 2009
8. Eighth — Geneva, 15-17 December 2011
No Ministerial Conference was held in 2007 due to serious difference among Member States on Doha development Agenda. Chances of success for such a meeting were very little.
The first ministerial meeting established four permanent working groups — Transparency in government procurement, trade facilitation, trade and investment, and trade and competition to facilitate a new round of negotiation on trade liberalization. These issues, along with a few others, are collectively known as the Singaporean Issues.
The countries were not in agreement on starting a new round of MTNs around them. The point of contention was that while many developed countries favoured a new round of MTNs on these issues, many others, the developing ones in particular, wanted the implementation issues to be resolved first.
Even the next two conferences could not produce an agenda for such a round of trade negotiations. In this regard, the Seattle conference is considered to be a complete failure.
Finally, the fourth ministerial-level meeting in Doha in 2001 marked the beginning of a new round of negotiation. It is termed as Doha Round of MTNs and has based on Doha Development Agenda, as outlined in Doha Ministerial Declaration.
It incorporates the issues like, reforming agricultural subsidies, new liberalization for sustainable economic growth in developing countries, and improving developing countries’ access to global markets for their exports. It also included services and issues pertaining to intellectual property rights, as also a special and differential treatment to developing countries. The round begins in November 2001.
Subsequent ministerial conferences continued to focus on the Doha Development Agenda so as to produce some kind of understanding on the issues. However, differences among the countries, especially among developed and developing countries, could not be resolved. They were so deep rooted, especially on agricultural import rules, that the negotiation process was completely halted in July 2008.
Despite intense negotiation subsequently, mostly between the USA, China, and India, no agreement could be reached. In April 2011, the director-general expressed serious concern about the consequences of throwing away the ten years of solid multilateral work. The future of Doha round is still uncertain, even in 2013, dragging the deadlock in 12th year. All hopes are now pinned on the 9th WTO Ministerial Conference in Bali, Indonesia, scheduled for December 2013.
This shows how difficult it is to proceed on trade liberalization under a rigid framework of the WTO. In fact, the WTO and its activities are widely criticized from time to time. During Seattle ministerial conference, for instance, more than 1200 groups and organizations from more than 85 countries have demanded a moratorium on further liberalization by bringing newer issues under the WTO.
Some have even questioned the legitimacy of it. Some suggested DCs to quit the WTO. In India also, there is a considerable opposition to WTO, for example, by farmers, small scale industry and various other segments of the society.
The above discussion clearly shows that no significant progress on trade liberalization took place since 1994 when the GATT’s Uruguay round was concluded.
The Dispute settlement mechanism of the WTO is much more powerful than the same under the GATT. The most important feature of it is its time bound nature under which the entire process starting from a call for consultation to adoption of report by DSB following appeal will not take more than a year and three months. In fact, it has specified the maximum time for every stage, as shown in Table-19.3.
Another important aspect of it is that the Member States are bound to accept the ruling. It they don’t, the aggrieve Member State may introduce retaliate and even ask for compensation. Such a strong mechanism is an effective deterrent to any violation of the WTO rules or agreements by any Member State.
Limitations of DSB:
While the DSM of the WTO provides a fast settlement of dispute, it is still criticized for being very expensive and hence many poor countries are unable to opt for it despite having grievances.
Moreover, the kind of expertise required to present the case may not be available in many developing countries. Hence, they have to procure services of legal experts from other countries, mostly from the developed one. It might require a sum of resources which may be sometime more than what the country will gain from a favourable decision from the DSM. In such matters, the mechanism is found ineffective.
Further, the DSM limits itself to the rules and regulations provided in. It has no power to look sympathetically to the needs of developing countries. For example, in a case regarding Banana exports from Caribbean economies, it granted punitive retaliation against EU without considering the devastating consequences on the poor Caribbean economies that depend solely on banana exports to EU for years.
India’s Case of Quantitative Restrictions on Import:
In this regard, a case relating to India’s quantitative restrictions on import is interesting to study. India imposed such restrictions ever since 1960 on a larger number of items on balance of payment ground. The items were mostly consumer goods.
The WTO Committee on balance of payment reviewed them in January 1997 and suggested their removal. It invited Indian government to present a plan for eliminating them. In May 1997, India proposed a three-stage and nine-year phase-out schedule which many developed countries found unsatisfactory.
They had a negotiation with India but no agreement was reached. Subsequently, they requested consultation under Article XXII of the GATT in July 1997. As a result, India agreed to reduce the period to seven years. The US was still not satisfied and hence a panel was established at the DSB in July 1997 on the request of the United States.
Having lost the case at DSB even at appeal level, India was forced to abolish most of such restrictions in a two years’ time (2001-02 and 2002-03) which it did.
The WTO/GATT has influenced the global economic environment to a very considerable extent. Even the domestic environment of the Member States is under its significant influence.
However, it is a matter of concern that no significant progress in trade liberalization has taken place in past many years, particularly since 1995. The Doha round is yet to conclude. This is also an indication that national attitudes towards negotiation have considerably stiffened. It implies that earlier agreements might have caused severe adverse effects particularly with regard to living conditions of the poor in developing countries.
Final test of the WTO’s success would, therefore, not be with regard to growth in world trade or extent to which trade barriers are lowered but whether and to what extent living conditions of masses in all Member States, particularly in DCs which constitutes three-fourths of its members, are improved.