Notes For Bachelor of Commerce Students - Chapter-16 - World Trade Organisation

11/12/13 Notes for Bachelor of Commerce Students: CHAPTER-16 - WORLD TRADE ORGANISATION
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Commerce Notes
Notes for Bachelor of Commerce Students
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 GATT has been replaced by WTO in 1995.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 :-
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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
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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.
Q.6: Explain the impact of WTO Agreements on Indian Economy. OR
Analyse the impact of WTO agreements on India. What are its Pros and Coins?
Ans. A) IMPACT OF WTO AGREEMENTS ON INDIAN ECONOMY :-
The signing of WTO agreements will have far reaching effects not only on Indias foreign
trade but also on its internal economy. Although the ultimate goal of WTO is to free world trade in
the interest of all nations of the world, yet in reality the WTO agreements has benefitted the
developed nations more as compared to developing ones. The impact of WTO on Indias
economy is staged as follows :-
I. Positive Impact I Benefits I Advantages I Gains from WTO :-
The Positive impact of WTO on India's economy can be viewed from the following points:-
1) Increase In Export Earnings :-
Estimates made by World Bank, Organisation for Economic Co-operation and
Development (OECD) and the GATT Secretariat, shows that the income effects of the
implementation of Uruguay Round package will be an increase in traded merchandise goods. It is
expected that Indias share in world exports would improve.
2) Agricultural Exports :-
Reduction of trade barriers and domestic subsidies in agriculture is likely to raise
international prices of agricultural products. India hopes to benefit from this in form of higher
export earnings from agriculture. This seems to be possible because all major agriculture
development programmes in India will be exempted from the provisions of WTO Agreement.
3) Export Of Textiles And Clothing :-
With the phasing out of MFA (Multi - Fibre Arrangement), exports of textiles and clothing
will increase and this will be beneficial for India. The developed countries demanded a 15 year
period of phasing out of MFA, the developing countries, including India, insisted that it be done in
10 years. The Uruguay Round accepted the demand of the latter. But the phasing out Schedule
favours the developed countries because a major portion of quota regime is going to be removed
only in the tenth year, i.e. 2005. The removal of quotas will benefit not only India but also every
other country'.
4) Multilateral Rules And Disciplines :-
The Uruguay Round Agreement has strengthened Multilateral rules and disciplines. The
most important of these relate to anti - dumping, subsidies and countervailing measures,
safeguards and disputes settlement. This is likely to ensure greater security and predictability of
the international trading system and thus create a more favourable environment for India in the
New World Economic Order.
5) Growth To Services Exports :-
Under GATS agreement, member nations have liberalised service sector. India would
benefit from this agreement. For Eg:- Indias services exports have increased from about 5 billion
US $ in 1995 to 96 billion US $ in 2009-10. Software services accounted for about 45% of service
exports.
6) Foreign Investment :-
India has withdrawn a number of measures against foreign investment, as er the
commitments made to WTO. As a result of this, foreign investment and FDI has increased over
the years. A number of initiatives has been taken to attract FDI in India between 2000 and 2002. In
2009-10, the net FDI in India was US $ 18.8 billion.
II. Negative Impact / Problems I Disadvantages Of WTO Agreements on Indian Economy :-
1) TRIPs :-
The Agreement on TRIPs at Uruguay Round weights heavily in favour of Multinational
Corporations and developed countries as they hold a very large number of patents. Agreement on
TRIPs will work against India in several ways and will lead to rponopoly of patent holding MNCs. As
a member of WTO, India has to comply with standards of TRIPs.
The negative impact of agreement on TRIPs on Indian economy can be stated as follows
a) Pharmaceutical Sector :-
Under the Patents Act, 1970, only process patents were granted to chemicals, drugs and
medicines. This means an Indian pharmaceutical company only needed to develop and patent a
process to produce and sell that drug. This proved beneficial to Indian pharmaceutical companies
as they were in a position to sell quality medicines at low prices both in domestic as well as in
international markets. However, under the agreement on TRIPs, product patents needs to be
granted. This will benefit the MNCs and it is feared that they will increase the prices of medicines
heavily, keeping them out of reach of poor. Again many Indian pharmaceutical companies may be
closed down or taken over by large MNCs.
b) Agriculture :-
The Agreement on TRIPs extends to agriculture through the patenting of plant varieties. This
may have serious implications for Indian agriculture. Patenting of plant varieties may transfer all
gains in the hands of MNCs who will be in a position to develop almost all new varieties with the help
of their huge financial resources and expertise.
c) Microorganisms :-
The Agreement on TRIPs also extends to Microorganisms as well. Research in micro -
organisms is closely linked with the development of agriculture, pharmaceuticals and industrial
biotechnology. Patenting of micro - organisms will again benefit large MNCs as they already have
patents in several areas and will acquire more at a much faster rate.
2) TRIMs :-
Agreement on TRIMs provide for treatment of foreign investment on par with domestic
investment. This Agreement too weights in favour of developed countries. There are no provisions in
Agreement to formulate international rules for controlling restrictive business practices of foreign
investors. Jn case of developing countries like India, complying with Agreement on TRIMs would
mean giving up any plan or strategy of self - reliant growth based on locally available technology and
resources.
3) GATS :-
One of the main features of Uruguay Round was the inclusion of trade in services in
negotiations. This too will go in favour of developed countries. Under GATS agreements, the
member nations have to openup services sector for foreign companies. The developing countries
including India have opened up services sector in respect of banking, insurance, communication,
telecom, transport etc. to foreign firms. The domestic firms of developing countries may find it
difficult to compete with giant foreign firms due to lack of resources & professional skills.
4) Non - Tariff Barriers :-
Several countries have put up trade barriers and non - tariff barriers following the formation
of WTO. This has affected the exports from developing countries. The Union Commerce Ministry
has identified 13 different non - tariff barriers put up by 16 countries against India. For eg. MFA (Multi
- fibre arrangements) put by USA and European Union is a major barrier for Indian textile exports.
5) Agreement On Agriculture (AOA)
The AOA is biased in favour of developed countries. The issue of food security to developing
countries is not addressed adequately in AOA. The existence of global surpluses of food grains
does not imply that the poor countries can afford to buy. The dependence on necessary item like
foodgrains would adversely affect the Balance of Payment position.
6) Inequality Within The Structure Of WTO
There is inequality within the structure of WTO because the agreements and
amendments are in favour of developed countries. The member countries have to accept all
WTO agreements irrespective of their level of economic development.
7) LDC Exports
The 6th Ministerial Conference took place at Hong Kong in December 2005. In this
Conference, it was agreed that all developed country members and all developing countries
declaring themselves in a position to do so, will provide duty - free and quota - free market
access on a lasting basis to all products originating from all Least Developed Countries (LDC).
India has agreed to this. Now India's export will have to compete with cheap LDC exports
internationally. Not only this, the cheap LDC exports will come to Indian market and compete with
domestically produced goods.
India will face several problems in the process of complying with WTO agreements, but it
can also reap benefits by taking advantage of changing international business environment. For
this it needs to develop and concentrate on its areas of core competencies.
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