Vivek College Of Commerce

SEM II (2011-12)
ECONOMICS PROJECT

TOPIC IMPACT OF WTO ON INDIA

VANAJA.NADAR T.Y.B.COM- C ROLL. NO- 465

Impact of WTO on India, Roll.No - 465

CONTENTS
Reason to choose this topic Introduction History of WTO The Objective of WTO Reiterated Problems facing India in WTO and its Implementations Implications for India What should India do? TRIMS TRIPS Patents Impact of WTO in India Present stage of Negotiations Conclusion Reference

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Reason to choose this topic

Trade is an engine of economic development. The establishment of W.T.O is an important landmark in the history of international trade. When developing countries were liberalizing their economies, they felt the need for better export opportunities. The W.T.O provides opportunities for countries to grow and realize their export potentials, with appropriate domestic policies in place. The issue of globalization in the Indian context has occurred in the patterns of trade and capital flow in recent years; unfortunately, so far we have not made much use of it. At one time a countrys trade pattern was determined by its natural resources and the productivity of its land. Leaving aside political and institutional factors, a countrys level of income was also largely determined by the global demand for its natural resources and its relative efficiency in exploiting them. The importance of land as a source of comparative advantage, however, changed dramatically after the industrial revolution. Today, it is almost insignificant. After the industrial revolution, the availability of capital became the most dominant source of comparative advantage.

India will be able to expand its exports of agricultural products in which it has tremendous comparative advantage. The provisions of W.T.O offered ample opportunities to India to expand its export market. Contrary to this, the price situation changed dramatically after 1996, which was the first year after implementation of Urguay Round Agreement and formation of W.T.O. International price of agricultural commodities have since then plummeted, because of which domestic price turned higher than international price, which made India an attractive market for import of most agricultural commodities. This situation resulted in a wide spread decline in agricultural export and had also pressure on domestic prices. And many such impact which are detailed below.

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Impact of WTO on India, Roll.No - 465

Introduction
The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart is the WTO agreement, 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.

The World Trade Organization (WTO) is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. The organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements which are signed by representatives of member governments and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (19861994).

The organization is currently endeavoring to persist with a trade negotiation called the Doha Development Agenda (or Doha Round), which was launched in 2001 to enhance equitable participation of poorer countries which represent a majority of the world's population. However, the negotiation has been dogged by "disagreement between exporters of agricultural bulk commodities and countries with large numbers of subsistence farmers on the precise terms of a 'special safeguard measure' to protect farmers from surges in imports. At this time, the future of the Doha Round is uncertain."

The WTO has 153 members, representing more than 97% of the world's population, and 30 observers, most seeking membership. The WTO is governed by a ministerial conference, meeting every two years; a general council, which implements the conference's policy decisions and is responsible for day-to-day administration; and a director-general, who is appointed by the ministerial conference. The WTO's headquarters is at the Centre William Rappard, Geneva, Switzerland.

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Impact of WTO on India, Roll.No - 465

History of WTO
The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was established after World War II in the wake of other new multilateral institutions dedicated to international economic cooperation notably the Bretton Woods institutions known as the Bank and the International Monetary Fund. A comparable international institution for trade, named the International Trade Organization was successfully negotiated. The ITO was to be a United Nations specialized agency and would address not only trade barriers but other issues indirectly related to trade, including employment, investment, restrictive business practices, and commodity agreements. But the ITO treaty was not approved by the U.S. and a few other signatories and never went into effect. In the absence of an international organization for trade, the GATT would over the years "transform itself" into a de facto international organization.

The Objective of WTO Reiterated

It is very clear that the intention of the negotiators was to use trade as an instrument for development, to raise standards of living, expand production, keeping in view, particularly, the needs of developing countries and least-developed countries. The WTO must never lose sight of this basic principle. Every act of implementation and of negotiation, every legal decision, has to be viewed in this context. Trade, as an instrument for development, should be the cornerstone of all our deliberations, decisions and actions. Besides, the system should be seen to be equitable and fair. It must be used in such a manner that the letter and spirit of the Agreements is fully observed. The WTO Members must mutually support and encourage each other to achieve the final goal. It must be recognized that all Members should assume a negotiating rather than an adversarial posture. It should also be recognized that different economies have different features and structures, different problems, different cultures. The pace of change must be carefully calibrated to take into account such differences. All Members should guard against unilateral action that cuts at the root of multilateral agreement and consensus.

Developing countries have generally been apprehensive in particular about the implementation of special and differential treatment provisions (S&D) in various Uruguay

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Impact of WTO on India, Roll.No - 465 Round Agreements. Full benefits of these provisions have not accrued to the developing countries, as clear guidelines have not been laid down on how these are to be implemented. " The first Ministerial Conference held in 1996 in Singapore saw the commencement of pressures toenlarge the agenda of WTO. Pressures were generated to introduce new Agreements on Investment, Competition Policy, Transparency in Government Procurement and Trade Facilitation. The concept ofCore Labor Standards was also taken up for introduction.

India and the developing countries, which were already under the burden of fulfilling the commitments undertaken through the Uruguay Round Agreements, and who also perceived many of the new issues to be non-trade issues, resisted the introduction of these new subjects into WTO. They were partly successful. The Singapore Ministerial Conference (SMC) set up open-ended Work Program to study the relationship between Trade and Investment; Trade and Competition Policy; to conduct a study on Transparency in Government Procurement practices; and do analytical work on simplification of trade procedures (Trade Facilitation). Most importantly the SMC clearly declared on the Trade-Labor linkage as follows: We reject the use of labor standards for protectionist purposes, and agree that the comparative advantage of countries, particularly low-wage developing countries, must in no way be put into question. In this regard we note that the WTO and ILO Secretariat will continue their existing collaboration".

Not many people in this country are aware that there is a dispute settlement system in the WTO. This is at the heart of the WTO and sets it apart from the earlier GATT. Countries like the USA and the European Union have brought cases against us and won these cases like in pharmaceutical patents. India too has complained against the US and Europe and it too has won its fair share of disputes in areas like textiles. India must effectively use this mechanism to extract fair share in world markets.

It would be advantageous for India to give concrete shape to SAARC economic forum or free market and align itself with ASEAN.

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Impact of WTO on India, Roll.No - 465

Problems facing India in WTO and its Implementations

Predominance of developed nations in negotiations extracting more benefits from developing and least developed countries. Resource and skill limitations of smaller countries to understand and negotiate under rules of various agreements under WTO. Incompatibility of developed and developing countries resource sizes thereby causing distortions in implementing various decisions. Non-tariff barriers being created by developed nations. Dismantling of MFA (Multi Fiber Agreement) and its likely impact on countries like India. Under TRIPS question of high cost of Technology transfer, Bio Diversity protection, protection of Traditional Knowledge and Folk arts, protection of Bio Diversities and geographical Indications of origin, for example Basmati, Mysore Dosa or Champagne. The protection has been given so far in wines and spirits that suit US and European countries. But there are several problems facing these Multilateral Trade agreements: - Predominance of developed nations in negotiations extracting more benefits from developing and least developed countries - Resource and skill limitations of smaller countries to understand and negotiate under rules of various agreements under WTO - Incompatibility of developed and developing countries resource sizes thereby causing distortions in implementing various decisions - Questionable effectiveness in implementation of agreements reached in past and sincerity - Non-tariff barriers being created by developed nations. - Regional cooperation groups posing threat to utility of WTO agreement itself, which is multilateral encompassing all member countries - Poor implementation of Doha Development Agenda - Agriculture seems to be bone of contention for all types of countries where France, Japan and some countries are just not willing to budge downwards in matter of domestic support and export assistance to farmers and exporters of agriculture produce. - Dismantling of MFA (Multi Fiber Agreement) and its likely impact on countries like India - Under TRIPS question of high cost of Technology transfer, Bio Diversity protection, protection of Traditional Knowledge and Folk arts, protection of Bio Diversities and geographical Indications of origin, for example Basmati, Mysore Dosa or Champagne. The protection has been given so far in wines and spirits that suit US and European countries.

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Impact of WTO on India, Roll.No - 465

Implications for India

It appears that India does not stand to gain much by shouting for agriculture reforms in developed countries because the overall tariff is lower in those countries. India will have to tart major reforms in agriculture sector in India to make Agriculture globally competitive. Same way it is questionable if India will be major beneficiary in dismantling of quotas, which were available under MFA for market access in US and some EU countries. It is likely that China, Germany, North African countries, Mexico and such others may reap benefit in textiles and Clothing areas unless India embarks upon major reforms in modernization and up gradation of textile sector including apparels. Some of Singapore issues are also important like Government procure, Trade and Investment, Trade facilitation and market access mechanism. India does not stand to gain much by shouting for agriculture reforms in developed countries because the overall tariff is lower in those countries. India will have to tart major reforms in agriculture sector in India to make Agriculture globally competitive. Same way it is questionable if India will be major beneficiary in dismantling of quotas, which were available under MFA for market access in US and some EU countries. It is likely that China, Germany, North African countries, Mexico and such others may reap benefit in textiles and Clothing areas unless India embarks upon major reforms in modernization and up gradation of textile sector including apparels.

Agricultural sector
The provisions of W.T.O offered ample opportunities to India to expand its export market. International price of agricultural commodities have since then plummeted, because of which domestic price turned higher than international price, which made India an attractive market for import of most agricultural commodities. This situation resulted in a wide spread decline in agricultural export and had also pressure on domestic value.

The Impact of W.T.O on agriculture was severely felt by India as cheap imports have frequently hit the Indian market, causing shock waves among the agriculture producers. the changes in agricultural exports reveal that during pre W.T.O period the increase was significant and could not be sustained in the post W.T.O period whereas imports remarkable than post W.T.O period and the rising export trend rose steadily.

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Impact of WTO on India, Roll.No - 465

Pharma sector
In Pharma-sector there is need for major investments in R &D and mergers and restructuring of companies to make them world class to take advantage. India has already amended patent Act and both product and Process are now patented in India. However, the large number of patents going off in USA recently, gives the Indian Drug companies windfall opportunities, if tapped intelligently. Some companies in India have organized themselves for this.

Tele com sector

The General Agreement on Trade in Services (the GATS) was one of the most important achievements of the Uruguay Round of negotiations that led to the creation of the World Trade Organization (the WTO). In 2001, international trade in services constituted approximately $1.450 trillion which represents almost 20% of total global trade in goods and services combined. Telecommunication services are important not just because annual telecommunications revenues run into hundreds of billions of dollars a year and a significant proportion of global GDP but also because they enable the supply of other types of services as well as the production of goods.

What should India do?

The most important things for India to address are speed up internal reforms in building up world-class infrastructure like roads, ports and electricity supply. India should also focus on original knowledge generation in important fields like Pharmaceutical molecules, textiles, IT high end products, processed food, installation of cold chain and agricultural logistics. India's ranking in recent Global Competitiveness report is not very encouraging due to infrastructure problems, poor governance, poor legal system and poor market access provided by India.

Our tariffs are still high compared to Developed countries and there will be pressure to reduce them further and faster. India must improve legal and administrative infrastructure, improve trade facilitation through cutting down bureaucracy and delays and further ease its financial markets. Corruption will also have to be checked by bringing in fast remedial public

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Impact of WTO on India, Roll.No - 465 grievance system, legal system and information dissemination by using e-governance. The petroleum sector has to be boosted to tap crude oil and gas resources within Indian boundaries and entering into multinational contracts to source oil reserves. The most important things for India to address are speed up internal reforms in building up world-class infrastructure like roads, ports and electricity supply. India should also focus on original knowledge generation in important fields like Pharmaceutical molecules, textiles, IT high end products, processed food, installation of cold chain and agricultural logistics to tap opportunities of globalization under WTO regime.

India's ranking in recent Global Competitiveness report is not very encouraging due to infrastructure problems, poor governance, poor legal system and poor market access provided by India. Our tariffs are still high compared to Developed countries and there will be pressure to reduce them further and faster. India has solid strength, at least for midterm (5-7 years) in services sector primarily in IT sector, which should be tapped and further strengthened.

India would do well to reorganize its Protective Agricultural policy in name of rural poverty and Food security and try to capitalize on globalization of agriculture markets. It should rather focus on Textile industry modernization and developing international Marketing muscle and expertise, developing of Brand India image, use its traditional arts and designs intelligently to give competitive edge, capitalize on drug sector opportunities, and develop selective engineering sector industries like automobiles & forgings & castings, processed foods industry and the high end outsourcing services.

India must improve legal and administrative infrastructure, improve trade facilitation through cutting down bureaucracy and delays and further ease its financial markets. India has to downsize non-plan expenditure in Subsidies (which are highly ineffective and wrongly applied) and Government salaries and perquisites like pensions and administrative expenditures.

Corruption will also have to be checked by bringing in fast remedial public grievance system, legal system and information dissemination by using e-governance.

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Impact of WTO on India, Roll.No - 465 The petroleum sector has to be boosted to tap crude oil and gas resources within Indian boundaries and entering into multinational contracts to source oil reserves. It wont be a bad idea if Indian textile and garment Industry go multinational setting their foot in western Europe, North Africa, Mexico and other such strategically located areas for large US and European markets. The performance of India in attracting major FDI has also been poor and certainly needs boost up, if India has to develop globally competitive infrastructure and facilities in its sectors of interest for world trade.

TRIMS
The Agreement on Trade Related Investment Measures (TRIMS) applies only to measures that affect trade in goods. It recognizes that certain measures can restrict and distort trade, and states that no member shall apply any measure that discriminates against foreigners or foreign products. It outlaws investment measures that lead to restrictions in quantities. It also discourages measures that limit a companys imports or sets targets for a company to export.

TRIPS
The Agreement on Trade Related of the Intellectual Property Rights (TRIPS) of the WTO, which came into effect on 1 January 1995, is to date the most comprehensive multilateral agreement on intellectual property. WTO and TRIPS set the minimum level of protection and enforcement provision, every member country must provide to a right holder. All the countries that are a part of GATT/WTO have to comply with the TRIPS text. Under Article 65.2 of TRIPS, India as a developing country has fallen under the WTO commitments after 1 Jan 2000.

Patents
Patents are one of the oldest forms of intellectual property protection and the aim of a patent system is to encourage economic and technological development by rewarding intellectual creativity. Patent under the Act is grant from the Government to inventor, for a limited period Vivek College of Commerce T.Y.B.ComC Page.No-10

Impact of WTO on India, Roll.No - 465 of time, the exclusive right to make, use exercise and vend invention. The purpose of patent is to provide a form of protection for technological advances. Patents are intended for breakthroughs in technology, but they are also intended for small technological increments. The advantage of taking out a patent are that the owner of a patent can exclude all others in the territory covered by the patent from making, using, selling or importing the invention. When the patent rights expire, the technology becomes public property, and the public is free to use it for their own good.

Impact of WTO in India

Two major components of trade liberalization that may be traced to Indias commitments are (a) removal of quantitative restrictions on textile imports, and (b) removal or quantitative restrictions on 1429 items (at 6-digit HS) in 2000/2001 after India had to give up the BOP cover. The liberalization of textile imports seems to have led to a sharp increase in imports of textiles in the period 2000 to 2003. But, the increase in imports of textiles is small in relation to the increase in exports in this period, so that the overall effect of import increase on domestic industry must have been modest. As regards the removal of QR on 1429 items (6digit HS) in 2000/2001, the imports increased substantially in a small number of them, uncompensated by export increase, and this may have adversely affected capacity utilization in such industries. But, overall, there has been only a limited increase in the imports of the 1429 items (mostly consumer goods) recently freed from QR. Three reasons can be given for the absence of any large-scale across-the-board increase in imports of items recently freed from QR. First, a number of them (nearly half) were already importable by the SIL route (Mehta 2000), and the removal of QR is unlikely to have led to any large increase in imports. Second, a number of agricultural items in the list have been canalized. Third, a number of trade defensive measures were put in place to provide adequate protection and a level playing field to domestic players vis--vis import as a result of phasing out of QR (Economic Survey, 2002). For instance, in November 2000, a list of 133 products and product groups for which standards had previously been voluntary or which had been compulsory but not enforced against imports, were made compulsory (Pursell and Sattar, 2003). The defensive measures had the intended effect of containing imports of the products freed from QR. But, in that process, the gains expected from a liberalized trade regime in terms of

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Impact of WTO on India, Roll.No - 465 higher efficiency and structural adjustment to market driven pattern of comparative advantage were not realized (Wacziarg, 2003).

Present stage of Negotiations

The third phase of negotiations ended in March-2003. As per original schedule, the modality of the Agreement was to be established by 31.03.2003. The deadline for establishment of Modality has been missed In the last one year a number of drafts for establishment of Modality have been proposed The major drafts include, Harbinsons original and revised draft, US-EU combined draft, Original Cancun Draft and the Derbez Text (Cancun revised draft ) The Cancun Ministerial failed to arrive at any agreement on modality for agriculture. There was no willingness on part of developed countries to recognize the genuine concerns of the developing countries, especially in agriculture The US & EU attempted to drive their own agenda, at the expense of Doha Declaration The concerns of the developing countries were expressed by a group viz. G-20 at Cancun. India, China, Brazil, Argentina and South Africa were the moving spirits behind the formation of this Group. Some of important features of the two Harbinson Drafts are as follows: Includes the crucial numbers. Framework proposes modalities. Tariff reduction higher than Uruguay Round, using the concept of average and minimal reductions based on tariff bands. Introduction of a new concept of Special Products for developing countries, average tariff reduction on SP to be at 10%, and minimum reduction, 5%.

Introduction of Safeguard Mechanism for developing countries. Reduction mainly in the amber box support by developed countries. Reduction in the De-minimis support for developed countries Proposals only to discipline the Blue Box payments, no reduction.

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Impact of WTO on India, Roll.No - 465 Proposals to tighten the criteria for Green Box payments for developed countries, expansion of Green Box for developing countries Elimination of direct export subsidies over a longer period. Indirect subsidies; no final proposal The S&D for the developing countries remains on the lines as Uruguay Round. The S&D for developing countries include, a marginally lower rate of tariff reduction, a longer implementation period, provision of Special Products with lower tariff reduction, provision of Safe guard mechanism, retention of provisions of the present AoA, with possible widening and retention of de-minimus in Amber Box Support The US-EU draft, and the two Cancun drafts are similar in nature and their main features are: The drafts propose only a framework. They dont indicate the key numbers Aggressive reductions in tariff by using a hybrid formula. Swiss formula to be a component of the hybrid formula Reduction for developing countries also to be by same formula, with lower final commitment. SPs to be limited in numbers. Reduction mainly in the amber box support by developed countries. Reduction in the De-minimis support for developed countries. Capping of product specific support in Amber Box Expansion of Blue box by inclusion of direct payments. Capping of the expenditure under new Blue Box, with a possible phased reduction over the implementation period. No reduction in Green Box payments. The criteria for Green Box payments may possibly be reviewed. Reduction commitments for developing countries lower with longer implementation period. The de-minimus for the developing countries to be retained at 10%. Elimination of export subsidies over an extended period during the implementation period. The trade distorting elements of export credit to be similarly treated. No specific timeframe for elimination suggested. The drafts fail to recognize the inter-linkages in the three pillars of AoA.

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Impact of WTO on India, Roll.No - 465 The reductions suggested in domestic support are minimal, as compared to the steep reduction in tariff included in the Draft. The drafts fail to recognize the food security and livelihood concerns of the developing countries. The drafts are not meeting the spirit of Doha Development Agenda. The G-20 has survived the pressures of the developed countries and almost remained united on agriculture issues. The Cancun process led to loss of confidence of developing countries in the developed countries. The negotiations have formally not yet started at Geneva. The stress, at present is more on arriving at bilateral understandings. G-20 had bi-laterals with EU, one in Brazil and other in Geneva. India has had separate bilateral discussions with USA as well as EU.

Conclusion
"In order to make WTO an effective multilateral body, which serves the objectives for which it was set up, it is necessary to go back to the basic principles. The Uruguay Round negotiators had stated their intentions quite clearly in the Preamble to the Marrakesh Agreement establishing the WTO. They recognised "that their relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world's resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development. They recognized also "that there is need for positive efforts designed to ensure that developing countries, and especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development".

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Reference
www.commerce.nic.in www.slideshare.net www.scribd.com www.icrier.org www.wikipedia.org www.managementparadise.com www.ideas.repec.org www.indianmba.com www.s-static.ak.fbcdn.net

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