CHAPTER-16 - WORLD TRADE ORGANISATION

Q.1 : Discuss the objectives and functions of WTO. (M.2011)

Ans. A) EMERGENCE OF WTO :-

After the Second World War, many countries got down together to work on ways and
means to promote international trade. The result was signing of General Agreement on
Tariffs and Trade (GATT) by 23 countries in 1947. India was one of the founder members of
GATT.
GATT was created to reduce global depression and to liberalise and regulate the
world trade by reducing tariff barriers. GATT has been replaced by WTO in 1995. WTO is
wider in scope as it regulates world trade in goods, as well as in services intellectual
property rights, and investment. In January 2010, the membership of WTO was 153
countries. Its rules and policies are the outcome of negotiations among WTO members.
Thus WTO is a member driven, consensus based organisation.
B. PRINCIPAL OBJECTIVES OF WTO
1) Trade Without Discrimination :-
Trade without discrimination through the application of Most Favoured Nation (MFN)
Principle. As per MFN clause, a member nation of WTO must accord (give) the same
preferential treatment to other member nations which it gives to any other member nation.
2) Raising The Standard Of Living :-
Raising the standard of living and incomes and ensuring full employment of the
citizens of its member nations.
3) Optimum Use Of World's Resources :-
Ensuring optimum use of world's resources and, thereby, expanding world production
and trade of goods as well as services.
4) Settlement Of Disputes :-
Settlement of disputes among members through consultation, conciliation, and as a
last resort through dispute settlement procedures.
5) Growth Of Less Developed Countries (LDCs) :-
It recognises the need for positive efforts designed to ensure that developing
countries especially the LDCs, secure a better share of growth in international trade.
6) Protection Of Environment
Preserving and protecting the environment of the world so as to benefit all the
nations of the world.
7) Enlargement Of Production And Trade
WTO aims to enlarge production and trade of goods as well as services.
8) Employment
WTO aims at generating full employment and increase in effective demand.
C) FUNCTIONS OF WTO
WTO has following functions
1) Implementation Of Reduction In Trade Barriers
WTO shall check the implementation of tariff cuts and reduction of non-tariff
measures agreed upon the member nations at the conclusion of Uruguay Round.
2) Forum For Negotiation
WTO shall provide the forum of negotiations among its members concerning their
multilateral trade relations.
3) Settlement Of Disputes
WTO shall administer the understanding on rules and procedures governing the
settlement of disputes.
4) Assistance To IMF And IBRD
WTO shall co-operate with IMF, IBRD and its affiliated agencies to achieve greater
coherence in global economic policy.
5) Administration Of Agreements
WTO shall look after the administration of 29 agreements (signed at the conclusion of
Uruguay Round in 1994), plus a number of other agreements, entered into after Uruguay
Round.
6) Examination Of Trade Policies
WTO shall regularly examine the foreign trade policies of member nations, to see that
such policies are in line with WTOs guidelines.
7) Consultancy Services
WTO shall keep a watch on the developments in the world economy and it provides
consultancy services to its member nations.
8) Collection Of Foreign Trade Information
WTO shall collect information on import - export trade and on various trade measures
and other trade statistics of member nations.

Q.2 : Explain the Salient Features of WTO Agreements reached on the basis
of Uruguay Rounds. OR
Explain the main WTO Agreements.

Ans. A) SALIENT FEATURES OF URUGUAY ROUND I WTO AGREEMENTS

The main agreements of WTO are
1) Agreement On Agriculture (AOA) :-
The main objective is to increase market orientation in agriculture trade. It provides
for commitments in the area of market access, domestic support and export competition. The
members have to transform their non-tarrif barriers like quotas into equivalent tariff measures.
The tariffs are to be reduced by 36% within 6 years in case of developed countries and by
24% within 10 years in case of developed countries. The least developed countries need not
make any commitment for reduction.
2) Agreement On Trade In Textiles And Clothing (Multi - Fibre Arrangement) :-
 This provides for phasing out the import quotas on textiles and clothing in force under
the Multi - Fibre Arrangement since 1974, over a| span of 10 years i.e. by 1st January, 2005.
With this agreement quota on textile and clothing has now been abolished.
3) Agreement On Manufactured Goods
The developed countries agreed to reduce tariffs on manufactured goods other than
textiles by 40%. The tariffs would now be brought down to an average of 3.8% from earlier
6.3%.
4) Agreement On TRIMs
An Agreement on Trade Related Investment Measures (TRIMs) calls for introducing
national treatment of foreign investments and removal of quantitative restrictions. It identifies
5 investment measures which are inconsistent with the GATT provisions on national
treatment and on general elimination of qualitative restrictions.
5) Agreement On TRIPs
Trade Related Intellectual Property Rights (TRIPs) pertain to Patents and Copyrights.
Whereas earlier on process patents were granted to food, medicines, drugs and chemical
products, the TRIPs Agreement now provides for granting product patents also in all these
areas. Protection will be available for 20 years for patents and 50 years for copyrights.
6) General Agreement On Trade And Services (GATS)
For the first time, trade in services like banking, insurance, travel, maritime
transportation, mobility of labour etc. has been brought within the ambit of negotiations. The
General Agreement on Trade in Services (GATS) provides a multilateral framework of
principles and services which should govern trade in services under conditions of
transparency and progressive liberalisation.
7) Disputes Settlement Body
Settllement of disputes under GATT was a never ending process. The Disputes
Settlement Body (DSB) set up under WTO seeks to plug the loopholes and provide security
and predictability to the multilateral trading system. It has now been made mandatory to
settle a dispute within 18 months. The findings of disputes settlement panels will be final and
binding on all parties concerned.
In addition to the above, the Uruguay Round also reached agreements on the
understanding and implications of certain articles of GATT 1947, viz, pre-shipment
inspection, rules of origin, import licensing, anti - dumping measures and countervailing
duties, safeguards, subsidies etc.

Q.3: Explain TRIPs Agreement and implication of TRIPs Agreement

of WTO on member nations. OR
Write note on TRIPs Agreement. (M. 2011)
Ans. A. AGREEMENT ON TRADE RELATED INTELLECTUAL PROPERTY RIGHTS
(TRIPs) :-

Intellectual property Rights seek to protect the interest of inventors and developers of
products and processes from being copied by others. The main features of TRIPs
agreements :-

Minimum Standards of protection to be provided by each member.

 Domestic procedures must be put in place for enforcement of IPRs by each member nation.
Dispute Settlement between WTO members.
Agreement on TRIPs cover the following areas Copyright and related rights, trade
marks including services marks, industrial designs, geographical indications, patents, layout
designs of integrated circuits and protection of undisclosed information or trade secrets.
WTO's TRIPs agreement is an attempt to narrow down the gaps in the way these
rights are protected around the world. Disputes over TRIPs agreement are to be governed
by WTO dispute settlement procedures. TRIPs agreement desires to reduce distortions and
impediments to international trade while protecting intellectual property rights.
B. POSITIVE IMPLICATIONS OF TRIPs AGREEMENT :-
1) Patents :-
Under Agreement on TRIPs, protection is given to patents, copyrights, layout designs
etc. For Eg.:- when patented drugs get exclusive marketing rights for certain period, and if
some other firm wants ' to use that products name, they have to take permission from patent
holder. Permission may be given only after signing agreement for royalty or fees.
TRIPs agreement has also given a boost to Research and Development in the field
of pharmaceuticals, engineering, electronics etc. Thus agreement on TRIPs have benefited
the member nations of WTO.
2) Public Health :-
The Doha Conference held in Doha, Qatar in Nov. 2001, recognised the need to
protect public health and to provide medicines to all. Here the developing countries need not
source their essential medicines at high cost from MNCs from developed countries, which
have patents. Countries like India, China and Brazil would benefit as they possess the
resources and technology to manufacture essential medicines and export these without
having to secure compulsory licensing from patent holders.
3) Geographic Indication Status (GIS):-
WTO also provides GIS for certain items. Once a country gets GIS, the firms from
only that country can use the generic brand name. For Eg. :- India has obtained GIS for
Darjeeling Tea and also for other products. This means, only Indian firms can use Darjeeling
Tea brand, which shows Darjeeling Tea produced in India is unique.
B) NEGATIVE IMPLICATIONS OF TRIPs AGREEMENT
1) Favours Developed Nations
Agreement on TRIPs favours developed countries as under TRIPs protection .is
given to IPRs such as patents, trade marks, layout designs etc. Thus it favours developed
nations as they have large number of patents.
2) Agriculture
In Agriculture patenting of plant varieties is done through TRIPs. This may have
serious implications for developing countries. MNCs are in a position to develop almost all
new varieties with the help of their financial resources and expertise. This may transfer all
gains in the hands of MNCs.
3) Micro - Organisms
Research in Micro-organisms is closely linked with the development of agriculture,
pharmaceuticals and industrial biotechnology. Patenting of Micro-organisms again will
benefit MNCs.
 Q.4 : Explain the implications of TRIMs Agreement of WTO on member nations. OR
Write note on TRIMs. (M.2011)
Ans. A) AGREEMENT ON TRADE RELATED INVESTMENT MEASURES (TRIMs)
Agreement on Trade Related Investment Measures (TRIMs) include introduction of
measures to be adopted by member countries to treat foreign investments on par with
domestic investments and also removal of quantitative restrictions on imports. It is an
attempt by a national government to place conditions on foreign company that wishes to
operate within its borders.
Certain investment measures that discriminate against foreign investment were to be
withdrawn such as
a) Obligation on foreign investors to use local inputs.
b) To produce for exports as a condition to obtain imported inputs.
c) To meet export obligation.
d) Employment of local people.
e) Technology Transfer requirements.
f) Use of specific production technology.
g) Local equity requirement.
h) Control on use of imported inputs.
The member nations of WTO including India have withdrawn the above measures to
encourage trade related investment.
TRIMs are of two types:-
Positive TRIMs :-
These include investment incentive to move to the country in question or to move to
a specific place within that country.
Negative TRIMs :~
These include local equity requirements, licensing requirements, foreign exchange
restrictions, transfer of technology requirements, trade balancing requirements, import -
export requirements etc.

B) POSITIVE IMPACT OF TRIMs :-

TRIMs agreement have positive impact on developing countries as foreign
investment is treated at par with domestic investment. For Eg. TRIMs agreement will
encourage foreign firms to invest in India. This will generate a good amount of competition.
In order to survive, Indian firms will have to be proactive with competitive strategies, which
not only would improve their performance, but also would provide better service to
customers.
C) NEGATIVE IMPACT OF TRIMs :-
Developing countries (including India) have withdrawn a number of measures that
restricts foreign investments. TRIMs agreement also favours developed nations. MNCs from
developed countries with their huge financial and technological resources can displace
Indian industry and play a dominant role. Besides foreign firms will be free to remit profits,
dividends, etc. to parent company. This will cause foreign exchange drain on developing
nations.
Q. 5 : Discuss the implications of GATS Agreement of WTO on member nations. OR
Write note on GATS.

Ans. A) GENERAL AGREEMENT ON TRADE IN SERVICES (GATS)

For the first time, in Uruguay Round, trade in services like banking, insurance, travel,
transport etc. was brought under negotiations. The General Agreement on Trade in Services
(GATS) is the first multilateral agreement on trade in services. All member nations are bound
to open their services sector to domestic private and foreign competition.
GATS has two major requirements
1) To grant the Status of Most Favoured Nation (MFN) to other member nations on non-
discriminate basis with regard to trade in services and
2) Maintenance of transparency. There is also commitment for progressive
liberalisation.
The inculsion of Services in agreement shows their growing importance in world
economy. Under GATS, India has made commitment for 33 activities where foreigners are
allowed to enter. The choice of activities have been based on national benefit like impact on
capital inflows, technology, employment etc.
Improvements in the quality of service that will emerge from liberalisation and
increased competition will contribute to increase in efficiency, productivity, consumer welfare
and growth in developing countries. No doubt there is a wide difference in the quality of
services rendered between the developed and developing countries. The inclusion of trade
in service sector is likely to be more beneficial to developed countries than to developing
countries.
B. POSITIVE IMPACT OF GATS :-
GATS provide an opportunity not only to avail services from other member countries
but also to increase the quality of its own services due to competition. Foreign firms are
allowed in number of service sectors. Through joint ventures or partnership foreign firms
may enter in India. This will enable Indian firms to expand and diversify their service
activities with professional expertise and foreign support.
In many developing countries, sectors like travel and tourism, hotels, retail trading,
banking, insurance, education and communication are open for international competition.
C. NEGATIVE IMPACT OF GATS :-
In GATS agreement member nations have to open up the services sector for foreign
companies. Developing countries including India have opened up the services sector in
respect of banking, insurance, communication, telecom, transport etc. to foreign firms.
Developing countries may find it difficult to compete with giant foreign firms due to lack of
resources and professional skills.