Chapter 28: WTO – Development

28.1 Introduction

28.2 Salient features of WTO

28.2.1 Agreement on Agriculture

28.2.2 Agreement on Manufactured goods

28.2.3 Multi fiber Arrangement

28.2.4 Agreement on Trade related Investment measures

28.2.5 Agreement on Trade related Intellectual Property Rights

28.2.6 Agreement on Services

28.2.7 Disputes Settlement Body

28.3 Evaluation of WTO

28.3.1 Geneva Talks -1998

28.3.2 Seattle Talks-1999

28.3.3. Doha Round Talks-2001

28.3.4 Cancun Talks-2003

28.3.5 Post-WTO Regime

28.4 Summary

28.5 Check your Progress

28.6 Key Concepts

28.7 Self-Assessment Questions

28.8 Answers to check your progress

28.9 Suggested Readings

Objectives:

After studying this lesson, you will be able to understand

 Meaning of General agreement on terms of trade

 Genesis of World Trade Organization

 Role of WTO in economic development

28.1 Introduction:

As regards trade relations, the experience of past four decades or so reveals that under
developed countries faced the problem of unfavourable balance of trade. This problem
was sought to be solved trough GATT, now replaced by World Trade Organization
(WTO). Unfortunately, GATT could not bring comfort to the less developed countries, as
it failed to bring any significant increase in their export earnings. The philosophy of
GATT based on the reduction of custom duties on the reciprocal and multilateral basis
could not work well, with the result that the export capacity of the developing countries
did not improve. Even the composition of GATT could not be universal as two big
communist countries were left out. Moreover, GATT was dominated by the rich countries
and as such poor countries could not get the assistance and facilities for the export
promotion. Being disgusted with the philosophy and working of GATT, the third world
leaders demanded the reorientation of the trade relations between developing and
developed countries. Such a demand was not without justification as the working of
GATT proved highly biased in favour of rich nations resulting in the greater disparity
between the “haves” and “have-nots”.
As a consequence the agreement at the conclusion of the Uruguay Round led to the
setting up of the institution of World Trade Organization. The agreement to establish
WTO was signed by 104 countries. This organization came into existence on 1st January,
1995 and replaced the GATT. India has become one of its founder members by ratifying
the WTO agreement on 30th December, 1994. This body will also have the rights to
adjudicate upon the disputes involving the member countries. The Uruguay Round has
thus forged a multilateral constraint upon any unilateral or bilateral action that the
countries like the United States can take under trade laws.WTO has significantly
influenced the liberalization and globalization process in most of the developing
countries including India. WTO provides for reduction in tariffs and trade restrictions in
phased manner over a period of time. It lays down that this task be accomplished in
different rounds of trade negotiations to be held from time to time. All the members of
WTO have to adopt laws and policies in order to comply with the WTO rules.

28.2 Salient features of WTO:

• Agreement on agriculture
• Agreement on manufactured goods
• Multi-fiber arrangement
• Agreement on trade related investment measures
• Agreement on trade related intellectual property rights
• Agreement on services
• Disputes settlement body

28.2.1. Agreement on agriculture

This provides a frame work for the long term reform of agricultural trade and domestic
policies over the years to come. It provides for commitments in the area of market access,
domestic support and export competition

28.2.2. Agreement on manufactured goods

With respect to manufactured goods other than textiles, the developed countries agreed to
reduce their tariffs by 40% to an average of 3.8% from the pre Uruguay Round d level of
6.3%

28.2.3. Multi-fiber arrangement

This provides for phasing out the import quotas on textiles and clothing in force under the
multi-fiber arrangement since 1974 over a span of 10 years.

28.2.4. Agreement on trade related investment measures

The agreement calls for introducing national treatment for foreign investments and
removal of quantitative restrictions.

28.2.5. Agreement on trade related intellectual property rights

The agreement stipulates the minimum standards of protection to be adopted by the

parties in respect of; copy right and related rights; trade marks; geographical indications;
industrial designs; patents; protection of trade secrets and the enforcement of these.

28.2.6. Agreement on services

For the first time trade in services like banking, insurance, travel, mobility of labour,
etc... has been brought within the ambit of negotiations.

28.2.7. Disputes settlement body

Unlike the GATT it has now been made mandatory to settle a dispute within 18 months.
The findings of the disputes settlement panels will be final and binding on all parties
concerned.
28.3 Evaluation on WTO by UNDP:

India became a founder member of WTO by ratifying the agreement on 30th Dec 1994. no
other issue in recent times has generated so much effects – benefits and losses of the new
international economic order on world economy in general and developing countries in
particular.

In this connection, an evaluation by the UNDP human development report stated thus;

Poor countries often lose out because the rules of the game are biased against them
particularly those relating to international trade. The Uruguay Round hardly changed the
picture. Developing countries, with three quarters of world’s people, will get only a
quarter to a third of the income gains generated and most of that will go to a few
powerful exporters in Asia and Latin America.

The WTO led trading system has not delivered on the promise of the trade creation and
income generation for developing countries and they continue to face traditional as well
as new and complex barriers to their export of commodities, goods and services. The
developing countries have to ensure that the follow –up negotiations on the WTO
agreement result in improved trade access to them and the developed countries are
compelled to do away with their protectionist measures, both open and veiled.

28.3.1 Geneva Talks-1998:

In the Geneva Conference held in May 1998, the WTO did not take any bold steps to
correct some of the anomalies in the multilateral trading system adversely affecting the
interest of poor countries. India, along with other developing countries, rightly
emphasized the need for amendments in the Uruguay Round agreements in the service
sector, agriculture and trade related intellectual property rights. The WTO declaration had
seemingly responded to the Indian plea by expressing its concern over the
marginalization of the least developed countries and pointing out that the benefits of the
multilateral trading system must flow from the developed to the developing world. But
while pledging to market access conditions for products exported by the poor countries,
the WTO did not announce any immediate action plan. It preferred to levee the issue to
the “good sense “of the developed countries.

With the gradual elimination of tariffs and proposal to consider duty and quota – free
access to products from least developed countries, developed countries are likely seeks
out new and innovative means of denying access to their markets. Non-tariffs barriers to
trade in the form of labor standards child labor issues like human rights and government
etc., could be foremost among them. While these might all be desirable objectives
themselves, developing countries must project their concerns and difficulties effectively
to the developed world. Trade unions and NGO’s should be used to oppose the various
non trade issues which may be brought under the WTO fold and their should be greater
coordination between trade policy and foreign policy.

28.3.2 Seattle Talks-1999:

The collapse of the WTO talks in Seattle in Dec 1999 was primarily due to the attempts
to linked trade with non trade issues like labor and environment. These issues should be
addressed by appropriate international institutions that are more competent and better
equipped than the WTO. The developing countries should be given more time for
transition to a more open economic scenario.

28.3.3 Doha Round Talks – 2001 :

The Doha Round, conceived into 2001, was seen as a means for least developed countries
to trade their way out of their poverty; for years, aid had crippled rather then raised
productive potential of LDC’s.
Trade diplomats and analysts described the finalization of the draft of the ministerial
declaration of trade – related intellectual property rights and public health in the WTO’s
Doha Conference on Nov 14, 2001 as a major breakthrough from the point of view of
developing countries. The overall outcome at Doha was not bad for India but the
government should now be careful about its approach to forthcoming WTO negotiations.
Of course we have to strive very hard to ensure a gainful transition with least pain into
the global economy. The government has also to strive to improve infrastructure and
provide a facilitating environment for including acceleration in trade.

While no consensus could be reached at the Tokyo mini ministerial summit of WTO held
in february 2003 on the crucial new trade negotiations, India fortified its position on
agriculture, TRIP’s and public health Issues.

28.3.4 Cancun Talks-2003:

The talks held at Cancun in Mexico in September 2003 failed and no agreement could be
reached due to the stubborn attitude of the developing countries towards farm subsidies
they give. With the developing countries forced to liberalize trade and open up markets,
this has brought millions of third world farmers to the brink of penury and starvation. The
Hong Kong sixth WTO ministerial held in December 2005 addressed concerns of both
agriculture and industrial sector. According to the declaration, developed countries will
have to eliminate their export subsidies by 2013 while reducing them substantially by
2010.

28.3.5 Post-WTO Regime:

The post-WTO regime is potent with both dangers and opportunities for Indian
properties and commodities. Greater vigilance is now necessary on the part of the
developing countries to ensure that the foreign companies are not able acquire rights on
traditional items. With the collapse of talks at Geneva in July 2006 the target of
December 2006 for completion of Doha Round looks more difficult. The differences
persisted regarding the reduction of subsidy to agricultural products by the rich countries
and tariff on industrial products by the developing countries. The major trading powers
failed to resolved differences on reforming world farm trade which lies at the heart of the
Doha Round. Developed countries will have to address trade-distorting subsidies in
agriculture to complete Doha Round by December 2006.

28.4 Summary

At the outset as a consequence of the agreement at the conclusion of the Uruguay Round
led to the setting up of the institution of World Trade Organization. The agreement to
establish WTO was signed by 104 countries. This organization came into existence on 1st
January, 1995 and replaced the GATT. India has become one of its founder members by
ratifying the WTO agreement on 30th December, 1994. This body will also have the rights
to adjudicate upon the disputes involving the member countries. The Uruguay Round has
thus forged a multilateral constraint upon any unilateral or bilateral action that the
countries like the United States can take under trade laws. WTO has significantly
influenced the liberalization and globalization process in most of the developing
countries WTO including India. WTO provides for reduction in tariffs and trade
restrictions in phased manner over a period of time. It lays down that this task be
accomplished in different rounds of trade negotiations to be held from time to time. All
the members of WTO have to adopt laws and policies in order to comply with the WTO
rules.

28.5 Check your Progress

State whether the following are True or False:

1. WTO replaced by the GATT

2. Multi Fiber arrangement is a salient feature of WTO
3. Geneva Talks held in 1999
4. Doha conference held in 2001

28.6 Key Concepts

World Trade Organization : Under developed countries faced the problem of
unfavourable balance of trade for a long time. This problem was sought to be solved
trough GATT, now replaced by World Trade Organization (WTO).
Multi Fiber agreement : This provides for phasing out the import quotas on textiles and
clothing in force under the multi-fiber arrangement since 1974 over a span of 10 years.

TRIM’s : The agreement calls for introducing national treatment for foreign investments
and removal of quantitative restrictions.

TRIP’s : The agreement stipulates the minimum standards of protection to be adopted

by the parties in respect of; copy right and related rights; trade marks etc., and the
enforcement of these.

Agreement on Services: For the first time trade in services like banking, insurance,
travel, mobility of labour, etc... has been brought within the ambit of negotiations.

28.7 Self-Assessment Questions

Long Answer Questions

1. Examine critically the working of WTO.

2. Discuss the role of WTO in economic development

3 What are salient features of WTO

Short Answer Questions

4 Write Note on Agreement on Agriculture

5. What is meant by Multi Fiber Arrangement

6 Distinguish between TRIP’s and TRIM’s

7 Explain the Essense of Cancun Talks

28.8 Answers to check your progress

1. False 2. True 3. False 4. True

28.9 Suggested Readings

1. Todaro,M.P., Economic Development in the Third World,1978

2. Meier,G.M.(ed), Leading Issues in Economic Development,1984
3. Jhingin M.L. The Economics of Development and Planning,2002
4. Taneja,Myer Economics of Development and Planning,2007