Navinchandra Mehta institute of technology and development

World Trade Organization And India

Group members
Sandesh Bhingarde - 3107 Gauri Bhoir Shashank Chaubal Krupali Dandekar Shreyas Dicholkar Amit Doshi-3108 - 3109 - 3110 - 3111 - 3112

INDEX
Serial no. TOPICS

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Introduction to World Trade Organization Formation Functions Objections WTO Agreements Positive Impacts of WTO To India Negative Impacts of WTO Recent Developments Challenges for India Ways to convert Challenge into Opportunity Conclusion

World Trade Organization and India

Introduction: What is the WTO? The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the worlds trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.

Understanding the WTO: There are a number of ways of looking at the World Trade Organization. It is an organization for trade opening. It is a forum for governments to negotiate trade agreements. It is a place for them to settle trade disputes. It operates a system of trade rules. Essentially, the WTO is a place where member governments try to sort out the trade problems they face with each other.

Formation: The World Trade Organization (WTO), established on January 1, 1995, is a multilateral institution charged with administering rules for trade among member countries. Currently, there are 145 official member countries. The United States and other countries participating in the Uruguay Round of Multilateral Trade Negotiations (1986-1994) called for the formation of the WTO to embody the new trade disciplines adopted during those negotiations. The WTO functions as the principal international body concerned with multilateral negotiations on the reduction of trade barriers and other measures that distort competition. The WTO also serves as a platform for countries to raise their concerns regarding the trade policies of their trading partners. The basic aim of the WTO is to liberalize world trade and place it on a secure basis, thereby contributing to economic growth and development.

Functions of WTO: The former GATT was not really an organisation; it was merely a legal arrangement. On the other hand, the WTO is a new international organisation set up as a permanent body. It is designed to play the role of a watchdog in the spheres of trade in goods, trade in services, foreign investment, intellectual property rights, etc. Article III has set out the following five functions of WTO; (i) The WTO shall facilitate the implementation, administration and operation and further the objectives of this Agreement and of the Multilateral Trade Agreements, and shall also provide the frame work for the implementation, administration and operation of the plurilateral Trade Agreements. (ii) The WTO shall provide the forum for negotiations among its members concerning their multilateral trade relations in matters dealt with under the Agreement in the Annexes to this Agreement. (iii) The WTO shall administer the Understanding on Rules and Procedures Governing the Settlement of Disputes. (iv) The WTO shall administer Trade Policy Review Mechanism. (v) With a view to achieving greater coherence in global economic policy making, the WTO shall cooperate, as appropriate, with the international Monetary Fund (IMF) and with the International Bank for Reconstruction and Development (IBRD) and its affiliated agencies. Objectives of WTO: Important objectives of WTO are mentioned below: (i) To implement the new world trade system as visualised in the Agreement; (ii) To promote World Trade in a manner that benefits every country; (iii) To ensure that developing countries secure a better balance in the sharing of the advantages resulting from the expansion of international trade corresponding to their developmental needs; (iv)To demolish all hurdles to an open world trading system and usher in international economic renaissance because the world trade is an effective instrument to foster economic growth; (v) To enhance competitiveness among all trading partners so as to benefit consumers and help in global integration; (vi)To increase the level of production and productivity with a view to ensuring level of employment in the world; & to expand and utilize world resources to the best; (viii)To improve the level of living for the global population and speed up economic development of the member nations.

Agreements of WTO: 1. Agreement on Agriculture After over 7 years of negotiations the Uruguay Round multilateral trade negotiations were concluded on December 1993 and were formally ratified in April 1994 at Marrakesh, Morocco. The WTO Agreement on Agriculture was one of the main agreements which were negotiated during the Uruguay Round. The WTO Agreement on Agriculture contains provisions in 3 broad areas of agriculture: 1. Market access. 2. Domestic support. 3. Export subsidies Market access: This includes tariffication, tariff reduction and access opportunities. Tariffication means that all non-tariff barriers such as quotas, variable levies, minimum import prices, discretionary licensing, state trading measures, voluntary restraint agreements etc. need to be abolished and converted into an equivalent tariff. Ordinary tariffs including those resulting from their tariffication are to be reduced by an average of 36% with minimum rate of reduction of 15% for each tariff item over a 6 year period. Developing countries are required to reduce tariffs by 24% in 10 years. Developing countries as were maintaining Quantitative Restrictions due to balance of payment problems, were allowed to offer ceiling bindings instead of tariffication. Special safeguard provision allows the imposition of additional duties when there are either import surges above a particular level or particularly low import prices as compared to 1986-88 levels. It has also been stipulated that minimum access equal to 3% of domestic consumption in 198688 will have to be established for the year 1995 rising to 5% at end of the implementation period.

Domestic support For domestic support policies, subject to reduction commitments, the total support given in 1986-88, measured by the total Aggregate Measurement of Support (AMS) should be reduced by 20% in developed countries (13.3% in developing countries). Reduction commitments refer to total levels of support and not to individual commodities. Policies which amount to domestic support both under the product specific and non-product specific categories at less than 5% of the value of production for developed countries and less than 10% for developing countries are also excluded from any reduction commitments. Polices which have no or at most minimal trade distorting effects on production are excluded from any reduction commitments. The list of exempted green box policies includes such policies which provide services or benefits to agriculture or the rural community, public stock holding for food security purposes, domestic food aid and certain de-coupled payments to producers including direct payments to production limiting programmers, provided certain conditions are met. Special and Differential Treatment provisions are also available for developing country members. These include purchases for and sales from food security stocks at administered prices provided that the subsidy to producers is included in calculation of AMS. Developing countries are permitted untargeted subsidized food distribution to meet requirements of the urban and rural poor. Also excluded for developing countries are investment subsidies that are generally available to agriculture and agricultural input subsidies generally available to low income and resource poor farmers in these countries. Export subsidies The Agreement contains provisions regarding member's commitment to reduce Export Subsidies. Developed countries are required to reduce their export subsidy expenditure by 36% and volume by 21% in 6 years, in equal installment (from 1986-1990 levels). For developing countries the percentage cuts are 24% and 14% respectively in equal annual installment over 10 years. The Agreement also specifies that for products not subject to export subsidy reduction commitments, no such subsidies can be granted in the future. 2. Trade Related Aspects of Intellectual Property Rights(TRIPS): The TRIPS Agreement seeks to ensure minimum standards for protection of intellectual property. In agriculture that would be relate to: Trademarks, i.e., signs or symbols used to distinguish goods of one enterprise from another; Geographical indications (GIs), which refer to the use of a regions name by producers from the area in order to protect their reputation or to safeguard the expectations of consumers who have come to associate certain qualities with a products origin.

Geographical indications, in particular, have become more important in the global agriculture and food industry because of the expansion in global trade. Although there are other related international agreements, the TRIPS. Agreement is the first agreement to deal with GIs as such. Under TRIPS, the normal level of protection (afforded to all products) refers to Members obligation to provide the legal means for interested parties to prevent the use of indications deceiving consumers as to the geographical origin of a good or constituting an act of unfair competition. 3. Implementation of Article VI of GATT 1994 (Anti-Dumping) (ADP): ADP seeks to balance potentially conflicting interests of: Importing countries in imposing anti-dumping measures to prevent injury to domestic industries; and Exporters, that anti-dumping measures and procedures should not themselves become obstacles to fair trade. The SCM and ADP both govern measures that governments of importing countries can take if requested by domestic industry in response to unfair trade practices. 4.Technical Barriers to Trade (TBT): The objective is to ensure that technical regulations are not prepared, adopted or applied with a view to, or with the effect of creating unnecessary obstacles to trade. It sets out objectives for which governments may develop technical regulations, including, interalia: national security; prevention of deceptive practices; protection of human health or safety, and animal and plant life or health; and the environment. Technical regulations (compulsory product standards, packaging & labeling requirements, etc); It establishes the basic principles for the preparation, adoption and application of technical regulations and the procedures for conformity assessment and circumscribes mandatory technical regulations that specify product characteristics or their related processes and production methods. Product standards (e.g. product characteristics, process & production methods, terminology & symbols). Both the SPS and TBT agreements contain rules of general application, which govern goods entering the customs territory of an importing country. But the SPS Agreement is focused more narrowly than the TBT. Agreement and therefore contains certain objective standards of legitimacy for all SPS measures. As tariff barriers are reduced, the importance of standards and technical regulations has increased markedly. Small developing countries should devote carefully rationed attention to the evolving rules in the TBT and SPS WTO negotiations. While it is clear that lower tariffs

mean free trade, it is not at all clear how changes in particular standards or technical regulations, or the system as a whole, affect trade. Specifications can be voluntary standards or mandatory technical regulations; they can be national or international; and most important, they can increase access by developing countries to the market or they can bar entry. Impacts of WTO to Indian Economy: The WTO is a body designed to promote free trade through organizing trade negotiations and act as an independent arbiter in settling trade disputes. To some extent the WTO has been successful in promoting greater free trade. Free trade has many positive impacts, such as: 1. Lower prices for consumers. Removing tariffs enables us to buy cheaper imports

2. Free trade encourages greater competitiveness. Firms face a higher incentive to cut costs. For example, a domestic monopoly may now face competition from foreign firms. 3. Law of comparative advantage states that free trade will enable an increase in economic welfare. This is because countries can specialize in producing goods where they have a lower opportunity cost. 4. Economies of scale. By encouraging free trade, firms can specialize and produce a higher quantity. This enables more economies of scale, this is important for industries with high fixed costs, such as car and aero plane manufacture. 5. Free trade can help increase global economic growth.

Negative of WTO to Indian Economy: However, the WTO has often been criticized for ignoring the plight of the developing world.

It is argued the benefits of free trade accrue mostly to the developed world. The rate of benefits 2 be the member of WTO 2 the developing countries is low. Free trade may prevent developing economies develop their infant industries. For example, if a developing economy was trying to diversify their economy to develop a new manufacturing industry, they may be unable to do it without some tariff protection. Certain clauses of WTO agreement on agriculture put restrictions on the provision of subsidised food grains in India

In response to this the WTO may say that free trade has been an important engine of growth for developing countries in Asia. Although there may be some short term pain, it is worth it in the long run.

Recent Developments:

On 9 July 2009 WTO organizes a workshop on environmental private standards, certification and labeling requirements. 6 September 2009 - WTO open its doors to the public for the first time. India hosted an informal meeting of 35 countries, representing various interest groups, in September for ways to revive the Doha round of WTO negotiations for further opening up of markets for goods and services. India proposed that the forthcoming seventh Ministerial Conference of the World. Trade Organization (WTO) to held in November, should address some systemic issues for improving the functioning and efficiency of the WTO as a rules-based system, & Make the system more useful, relevant, vibrant and user-friendly & submitted five proposals.

Challenges for India: To maintain the credibility of the world trading system, world rights and obligation must continue to adapt to the new challenges arising from the increasing globalization of economic activity. To do so, WTO members need both the progress to deal with the implementation the results of the Uruguay Round and begin to address issue likely to dominate world in the 21st century. Four challenges deserve priority attention on the world trade organization agenda.

(i)

Inflation:

As the world economy has begun to stabilize in the aftermath of the global crisis, inflation has re-emerged as a major concern particularly in the fast recovering developing economies. The rise in global prices of commodities, such as oil, food, industrial inputs and metals has been compounded by domestic factors that include both demand side pressures, a corollary to the recovery in the domestic economy, and supply side constraints. Measures have also been taken on the trade policy front to moderate inflation by reducing the import duty on rice, wheat, pulses, edible oils (crude), butter and ghee, and edible oils. Import of raw sugar is now allowed at zero duty. Full exemption from basic customs duty has been provided to onions and shallots with effect from 21 December 2010.

(ii)

Fiscal deficit:

The enactment of the Fiscal Responsibility and Budget Management Act (FRBMA) 2003 facilitated the fiscal consolidation process. The fiscal deficit and revenue deficit of the Central Government declined consistently from 2003-04 to 2007-08. Due to the extraordinary circumstances posed by the global crisis, the Government initiated an expansionary policy in 2008-09 combining an increase in expenditure with tax cuts in order to boost domestic demand. The decline in private consumption expenditure was supplemented by an increase in Government expenditure. The greater fiscal space created during 2003-04 to 2007-08 also helped to counteract the impact of the global economic crisis. As the economy returned on a path to recovery, the Union Budget for 2010-11 outlined the steps towards a return to the pre-crisis zone of fiscal consolidation. The fiscal stimuli that had been put in place to mitigate the impact of the global financial crisis, were rolled back in large part in the Budgets of 2010-11 and 2011-12. As against a target revenue deficit of 4%, the actual revenue deficit was 3.1% during 2010-11.The fiscal deficit was brought down from an initial estimate of 5.5% to 4.7% of GDP in 2010-11, and is targeted to be 4.6% in 2011-12. (iii) Infrastructure:

The infrastructure deficit remains one of the major constraints to India's growth. Economic growth has outpaced the growth of infrastructure, thereby placing strains on physical infrastructure and accentuating the infrastructure deficit. The performance of other sectors like agriculture and industry is also dependent on the quality of infrastructure. (iv) Agricultural growth and food security:

The challenges before Indian agriculture are immense. India is not where it should have been in the world market for agricultural products despite being one of the top producers. The country needs to put greater emphasis on cultivation of international varieties. Until India takes some steps in this direction, it will continue to produce more only to earn less. The major challenges for Indian agriculture system would always be increasing production and productivity to ensure food security for the raising population. Rigid quality control is a major challenge for Indian agriculture. The global agricultural market is influenced to a great extent by the quality of products, especially when exporting to developed nations. Indian agricultural exports have to face tough competition, which is a matter of serious concern. The right type of technology for growing and processing must be adopted so that there is good quality production at lower costs, which in turn will reduce the prices and place

Ways to convert Challenge into Opportunity: Promoting New Trade: Promoting New Trade liberalization initiatives including the built- in negotiation agenda mandated by the Uruguay round accords. Therefore, the first challenge facing the WTO is to refocus efforts on liberalizing barriers to trade in the area that have been resistant to pass reforms and that generate constant friction among the trade partners. Expanding Agenda: Expanding the WTO agenda to the new issues. For examples, investment, competition policy and trade related environment and lab our issues. 1. Investments:

The WTO needs to develop comprehensive investment rules to discipline countries deployment of carrot and sticks to induce industries to invest in the market. The TRIMs agreement in the Uruguay Round provided a tentative first step in this regard, but much more need to be done. 2. Competition policy:

Major industrialized countries have domestic completion policies. Common element include prohibition of domestic cartels, price fixing, market share allocation and surveillance of mergers and acquisitions. 3. Environment and Labor issues:

There has been heightened concern that countries can gain unfair trade advantage through disregard for environment and to unfair labour practice (particularly child labor). WTO members need to examine the extend to which the new international trade rules could resole or mitigate problems in both areas in order to lay the foundation for negotiation of new WTO rights and obligation. Tariffs: Developing countries also have to contribute to this liberalization process. To a large extent, trade concession by developing countries in the Uruguay Round involves the new trade rules the binding of tariffs at an applied rate. The ceiling binding allows this country to increase their tariff substantially. Developed countries need to further reduce their peak tariff, so to do developing countries need to reduce the gap between their bound rates and their currently applied rates.

Conclusion:

India, as a developing economy, has been benefitted being a founding member of the World trade Organization. The country at large has seen many significant changes which have taken place after the formation of WTO. Under the existing circumstances, the liberalization of world trade in agriculture will benefit developed countries more than developing countries. Given the conditions of high tariffs in the developed world and low or nil tariffs in developing countries, the removal of Quantitative Restrictions on agricultural commodities will tilt the balance of global trade in favor of the developed nations with detrimental effects on the producers in Third World countries. India must be alert to the implications of the WTO and its policies, and decide its own national priorities while taking policy decisions in the future. It is our duty not only to protect our national interest but also to promote it so as to take advantage of the situation. The situation is inescapable but there is scope to manipulate it in the national interest. There are some issues which are yet to be sorted out with the WTO and but there are large things falling in shape for the Indian Economy.