Liberalization, Privatization and

Globalization
Dhaarna Rathore

GATT/WTO AND GLOBAL LIBERALISATION

WTO principles and agreements are a very important

component of the global business environment
significantly impacting domestic as well as global
business.

GATT
The General Agreement on Tariffs and Trade (GATT), the predecessor of WTO,
was born in 1948 as result of the international desire to liberalise trade.
The GATT was transformed into a World Trade Organisation (WTO) with effect
from January, 1995.
India is one of the founder members of the IMF, World Bank, GATT and the
WTO.

Objectives
The Preamble to the GATT mentioned the following as its important objectives.
1. Raising standard of living.
2. Ensuring full employment and a large and steadily growing volume of real
income and effective demand.
3. Developing full use of the resources of the world.
4. Expansion of production and international trade.

 For the realization of its objectives, GATT adopted the following

principles:
1. Non-discrimination: The principle of non-discrimination requires that no
member country shall discriminate between the members of GATT in the
conduct of international trade.
2. Prohibition of Quantitative Restrictions: GATT rules seek to prohibit
quantitative restrictions as far as possible and limit restrictions on trade to
the less rigid tariffs.
3.Consultation: By providing a forum for continuing consultation, it sought
to resolve disagreements through consultation.

The Uruguay Round

Uruguay Round (UR) is the name by which the eighth Round of the multilateral
trade negotiations (MTNs) held under the auspices of the GATT is popularly known
because it was launched in Punta del Este in Uruguay, a developing country, in
September 1986.
The UR sought to broaden the scope of MTNs far wider by including new areas
such as:

Trade in services

Trade related aspects of intellectual property (TRIPs)

Trade related investment measures (TRIMs).

GATT and WTO

Following the UR Agreement, GATT was converted from a provisional agreement
into a formal international organisation called World Trade Organisation (WTO)
with effect from January 1, 1995.

Salient Feature of Ur AgreementI

Liberalisation of Trade in Manufactures
Liberalisation of trade in manufactures is sought to be achieved mostly by
reduction of tariffs and phasing out of non-tariff barriers.
Tariff Barriers : The major liberalisations in respect of trade in manufactures,
regarding tariffs, are:
1. Expansion of tariff bindings
2. Reduction in the tariff rates
3. Expansion of duty-free access

Non-tariff Barriers: In the area of NTBs, the Agreements to abolish

voluntary export restraints (VERs) and to phase out the Multifibre
Arrangements (MFA) are regarded as landmark achievements for
developing countries.

GATS
The General Agreement on Trade in Services (GATS) which extends multilateral
rules and disciplines to services is regarded as a landmark achievement of the UR
In short, the GATS covers four modes of international delivery of services.
1.
Cross-border supply (transborder data flows, transportation services)
2.
Commercial presence (provision of services abroad through FDI or
representative offices).
3.
Consumption abroad (tourism)
4.
Movement of personnel (entry and temporary stay of foreign consultants)

TRIMS
Trade Related Investment Measures (TRIMs) refers to certain conditions or
restrictions imposed by a government in respect of foreign investment in the
country.
The Agreement on TRIMs provides that no contracting party shall apply any TRIM
which is inconsistent with the WTO Articles.

TTRIPS
One of the most controversial outcomes of the UR is the Agreement on Trade
Related Aspects of Intellectual Property Rights including Trade in Counterfeit
Goods (TRIPs). TRIPs along with TRIMs and services were called the new issues
negotiated in the Uruguay Round.

Anti-dumping Measures
A product is regarded as dumped when its export price is less than the normal price
in the exporting country or its cost of production plus a reasonable amount for
administrative, selling and any other costs and for profits.

Safeguard Actions
Members may take safeguard actions, i.e., import restrictions to protect a domestic
industry from the negative effects of an unforeseen import surge, if a domestic
industry is threatened with serious injury.
Safeguard measures would not be applicable to developing countries where their
share in the member countrys imports of the product concerned is relatively small.

The WTO
Impact

Doha Declaration
The Fourth session of the Ministerial Conference of the WTO was held in Doha
(Qatar) in November 2001, in which Ministers from the 142 member countries
participated.
The Doha meet concluded by drawing up the Doha Development
Agenda for new trade liberalisation talks
The Doha Ministerial adopted three major declarations: (i) on the
negotiating agenda for the new WTO round, (ii) on some 40 implementation
concerns of the developing countries and (iii) on the political statement dealing with
patents and public health.
One remarkable achievement of the Doha Ministerial for developing
countries is that in the case of TRIPs and public health. it allowed waiver of the
patent law to face a national emergency.

WTO and India

The Uruguay Round Agreements and WTO have come in for scathing criticisms in
India. Many politicians and others have argued that India should withdraw from the
WTO. Most of the criticisms are either baseless or due to lack of knowledge of the
international trading environment, and misinformation, or are just meant to oppose
the government by the opposition parties.
Indias gain from trade liberalisation has been constrained by her limited
participation in global trade.

India has taken several measures to comply with the TRIPs Agreement: these
include amendments to some laws and new legislations.
Estimates of Indias possible gain from the trade liberalisation vary very wide
between $2 billion and $7 billion a year. Although the liberalisation of
trade in textiles will benefit the developing countries, Indias gain will
depend a lot on her competitive strength vis-a-vis other textile exporters.

The IMF defines globalizations as the growing economic interdependence

of countries worldwide through increasing volume and variety of cross
border transactions in goods and services and of international capital flows,
and also through the more rapid and widespread diffusion of technology.

Drivers of Globalisation
In general, globalization represents the increasing integration of the
world
economy, based on five interrelated drivers of change:
International trade (lower trade barriers and more competition)
Financial flows (foreign direct investment, technology transfers/licensing,
portfolio investment, and debt)
Communications (traditional media and the Internet)
Technological advances in transportation, electronics, bioengineering
and
related fields
Population mobility, especially of labor
Each of these drivers of change has accelerated in recent years and
each
reinforces the other

Essential Conditions for Globalisation

1.
2.
3.
4.
5.
6.

Business Freedom
Facilities
Government Support
Resources
Competitiveness
Orientation-

Foreign Market Entry Strategies

Important foreign market entry strategies are the following.
1. Exporting
2. Licensing / franchising
3. Contract manufacturing
4. Management contract
5. Assembly operations
6. Fully owned manufacturing facilities
7. Joint venturing
8. Countertrade
9. Mergers and acquisitions
10.Strategic alliance
11.Third country location

While Globalisation has Several Benefits, it has a Number of

Problems.
Global competition and imports keep a lid on prices, so inflation is less likely to
derail economic growth.
An open economy spurs innovation with fresh ideas from abroad.
Export jobs often pay more than other jobs.
Unfettered capital flows give the US access to foreign investment and keep
interest rates low.
The adverse effects of globalisation according to the survey are:
Millions of Americans have lost jobs due to imports or production shifts abroad.
Most find new jobs that pay less.
Millions of others fear losing their jobs, especially at those companies operating
under competitive pressure.
Workers face pay cut demands from employers, which often threaten to export
jobs.
Service and white collar jobs are increasingly vulnerable to operations moving
offshore.
U S employees can lose their comparative advantage when companies build
advanced factories in low-wage countries, making them as productive as those at

Policy Options
With a view to minimising the damages and maximising the opportunities of
globalisation from the macro socioeconomic point of view, the Human
Development Report 1997 of the UNDP has made to following policy
suggestions.
1. Manage trade and capital flows more carefully.
2. Invest in poor people.
3. Foster small enterprises.
4. Properly manage new technology.
5. Reduce poverty and introduce safety nets.
6. Influence governance.

Globalisation of Indian Business

Indias economic integration with the rest of the world was very limited because
of the restrictive economic policies followed until 1991. Indian firms confined
themselves, by and large, to the home market. Foreign investment by Indian
firms was very insignificant.
With the new economic policy ushered in 1991, there has, however, been a
change. Globalisation has in fact become a buzz-word with Indian firms now,
and many are expanding their overseas business by different strategies.

Obstacles to Globalisation

Government Policy and Procedures

High Cost
Poor Infrastructure
Obsolescence
Resistance to Change
Poor Quality Image
Supply Problems
Small Size
Lack of Experience
Limited R & D and Marketing Research
Growing Competition
Trade Barriers

Factors Favouring Globalisation

Human Resources
Wide Base
Growing Entrepreneurship
Growing Domestic Market
Niche Markets
Expanding Markets
Transnationalisation of World Economy
NRIs
Economic Liberalisation
Competition

PRIVATISATION

Privatization Routes

Sale to outsiders
Management-employee buy-out
Equal-access voucher
Spontaneous privatization
Cross-holding
Warehousing
Golden share
Strategic sale

Disinvestments of Equity in PSEs

Year
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04

Target

Proceeds

4,800
5,000
10,000
10,000
12,000
12,000
14,500

902
5,371
1,860
1,871
5,632
3,348
15,547

Arguments for and Against Privatisation

For Privatisation
Improves efficiency

Correct fiscal imbalances

Presence of country conditions

The capital-output ratio is high
in PSUs. This needs to be
rectified
Dismal performance of PSUs

Against Privatisation

Absence of well developed

capital markets

Revenue maximisation has

been main motive

Lack of cooperation from labour

Lack of transparency

Lack of strong will in the

government

Scope for creation of private

sector monopoly

Ranga Rajan Committee

1.
2.

3.
4.
5.
6.

Units to be disinvested need to be identified.

There is need for the government to retain majority holding in the equity of
undertakings in areas like defence and atomic energy. In others, disinvestment
can be upto any level.
Disinvestment shall be in stages and the sales are to be staggered so as to fetch
the best possible price from the bidders.
Workers interests need to be protected. Employees of the privatised units are
to be allowed to buy shares.
Disinvestment must be transparent.
An autonomous body needs to be set up to monitor the process of
disinvestment.

Thank You