Brief Snapshot on WTO q WTO GENESIS Why

Brief Snapshot on WTO q WTO GENESIS- Why WTO came into existence? q Overview of WTO – its Principles & functions. q Major Agreements q Agreement on Agriculture q Implication of Ao. A on World and on India q Impact of WTO on other Indian Industry q Impact of China’s entry into WTO on India q Post WTO Global Scenario q Future of WTO – Unresolved Issues q Criticism

WTO Genesis -Why WTO came into existence? GENERAL AGREEMENT ON TARIFFS & TRADE (GATT) – Predecessor to WTO: q GATT was an accident v Signed in 1946 as preparation for International Trade Organisation (which never came into being), came into existence in 1947 v India was also signatory along with 22 other countries q GATT – created set of global rules that governed trade in goods & sought: v Substantial reduction in tariff and other barriers to trade & v Eliminate discriminatory treatment in international commerce. q 8 rounds of negotiations had taken place during 5 decades of its existence. q GATT’s weaknesses: v It’s successful tariff reduction caused rise in use of non-tariff barriers (e. g. standards) v Dispute resolution was non-binding q 8 TH Uruguay Round (1986 -1993) long series of GATT negotiations v Created the WTO – a permanent institution

WTO Genesis -Why WTO came into existence? q WTO came into existence on 1. 1. 1995, precisely as a response to need for; v more effective regulatory, supervisory and enforcement environment for world trade & investment than the GATT could provide. q WTO’s aim- is to promote free trade and stimulate economic growth. q It is made up of a series of agreements and incorporates old GATT. q GATT only focused on trade in goods, WTO's rules extended to include; q Intellectual Property, Investment, Services, Telecommunications and Financial services (banking). GATT §Ad hoc and provisional §Contracting parties §Trade in goods §Dispute based on consensus WTO • Permanent and legal • Members • Trade in goods, services, Trade & IPRS • Faster, binding & Permanent mechanism

Overview q World Trade Organization (WTO) is one of the most powerful institutions in the world. It is an international, multilateral organization, which sets the rules for the global trading system & resolves disputes between its member states; q It oversees global trade in goods & services and has 30 agreements. q WTO headquarters are located in Geneva, Switzerland. q Pascal Lamy is the current Director-General from Sept 1, 2005. q Currently - 150 members; Vietnam latest to join. q Mission -WTO aims to increase international trade by promoting lower trade barriers and providing a platform for negotiation of trade & to their business.

BASIC PRINCIPLES q Non discrimination between countries: v v q q No Most Favoured Nation (MFN) Treatment - no special deals to trading partners, all members of WTO must be treated the same No National Special Treatment - locals and foreigners are treated equally Freer trade: gradually through negotiations Predictability: Promising not to raise tariffs is called binding a tariff and binding leads to greater certainty for businesses Promoting competition Encouraging Development and Economic Reform

WTO Functions q Transparent, free and rule-based trading system. q Provide forum for negotiations and common institutional framework for conduct of trade relations among members q Facilitate implementation, administration & operation of Multilateral Trade Agreements q Rules and Procedure Governing Dispute settlement – providing security and predictability to system and preserving rights & obligations of Members q Trade Policy Review Mechanism – designed to contribute to greater transparency and understanding of trade policies and practices to members. q Concern for LDCs (Least-developed countries) and NFIDCs(Net Food. Importing Developing Countries) q Concern on Non-trade issues like Food Security, Environment, Health etc. q Coherence in global economic policy-making – cooperating with IMF and world bank. q Technical assistance and training for developing countries

WHAT WTO DOES NOT REQUIRE? q Does not prevent member states from establishing their own trade and non-trade policy objectives. q Does not require them to eliminate all barriers to import of goods and services. q Does not direct national administrative and procedural system. q Does not require member states to have a uniform set of trade regulations.

Agreements WTO oversees about 30 different agreements which have the status of international legal texts. Member countries must sign and ratify all WTO agreements on accession. MULTILATERAL q General Agreement on Tariffs and Trade (GATT 1994) q q q Agreement on Agriculture Ao. A Agreement on the Application of Sanitary and Phytosanitary Measures(SPS) Agreement on Textiles and Clothing (Terminated on 1 st Jan, 2005) Agreement on Technical Barriers to Trade (TBT) Agreement on Trade-Related Investment Measures (TRIMs) Agreement on Pre-shipment Inspection (PSI) Agreement on Rules of Origin Agreement on Import Licensing Procedures Agreement on Subsidies and Countervailing Measures Agreement on Safeguards Agreement on Anti-Dumping (Agreement on Article VI) Agreement on Customs Valuation (Agreement on Article VII)

Agreements q q General Agreement on Trade in Services (GATS) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) PLURILATERAL q Agreement on Trade in Civil Aircraft q Agreement on Government Procurement q International Dairy Agreement q International Bovine Meat-Agreement

WTO Agreement on Agriculture q Signed as part of the Uruguay Round Agreement in April 1994. q Came into force w. e. f 1 January, 1995. Had 10 -year implementation period from 1995 to 2004, for developing countries. Covers three broad areas of agriculture and trade policy: q v v v q q Market access, Domestic support and Export subsidies. Obligation to reduce domestic support or subsidies extended to agriculture if support given is above permissible level of 10 per cent of value of its agricultural output. Under the Agreement, there can be no restrictions on farm trade except through tariffs -- i. e. , non-tariff barriers such as quantitative restrictions on imports through quotas, import licensing etc. , are to be replaced by tariffs or duties on imports to provide the same level of protection to domestic agriculture and thereafter, tariff levels are to be progressively reduced.

Reduction Commitments in WTO - Ao. A NEGOTIATED REDUCTION Market Access • Avg. Tariff cuts for all Agri product • Minimum tariff cuts per product Domestic Support • Total cuts in aggregate measurement of support Export Subsidies • Value Cut • Volume Cut Implementation Period Developed Countries (1995 -2000) Developing Countries (1995 -2004) % -36 -15 % -24 -10 -20 -13 -36 -21 -24 -14

Agreements q Domestic support: structures(subsidies) into 3 categories or "boxes": § Green Box: contains fixed payments to producers for environmental programmes e. g. Research, Extension, so long as payments are ‘decoupled’ from current prodn. levels. Amber Box: contains domestic subsidies that governments have agreed to reduce but not eliminate. Product Specific – MSP, Non-product specific (fertilisers, Power, Irrigation etc. ) Blue Box: contains subsidies which can be increased without limit, so long as payments are linked to production-limiting programmes. § § q Market Access: refers to reduction of tariff (or non-tariff) barriers to trade by member-states. The 1995 Ao. A required tariff reductions of: ü ü ü 36% avg. reduction by developed countries, with a min. per tariff line redn. of 15% over 5 yrs. 24% avg. reduction by developing countries with a min. per tariff line redn. of 10% over 9 yrs. LDCs exempted from tariff reductions, but either had to convert non–tariff barriers to tariffs- called tariffication—or "bind" their tariffs, creating a "ceiling" can’t increase in future.

Implication of Ao. A for World q q Every Economic activity will be influenced by agreements emanating from Geneva. Market access will improve with lowering of tariffs and dismantling of other import restrictions Lower tariffs will mean higher access to domestic markets foreign companies. The Uruguay Round of Trade Negotiations did not bring about trade liberalisation in agriculture, as expected. No significant reduction in domestic as well as export subsidies given by the developed countries to their agriculture. The anticipated increase in exports of agricultural products from developing countries, therefore, has not materialised. Continuation of high domestic support to agriculture in many developed countries is a cause for concern leading to low international prices.

India’s commitment to Ao. A Market Access ü India maintaining Quantitative Restrictions due to balance of payments reasons ü The only commitment India has undertaken is to bind its v Primary agricultural products at 100%; v Processed foods at 150% and v Edible oils at 300%. Domestic Support ü India does not provide any product specific support other than market price support. ü Non-product specific subsidy for fertilizers, water, seeds, credit and electricity. ü Not undertaken any commitment in scheduled filed under GATT, since total AMS is negative and that too by a huge magnitude, Export Subsidies ü Exporters of agricultural commodities do not get any direct subsidy apart from (a) exemption of export profit from income tax under section 80 -HHC of Income Tax

Implication of Ao. A for India q q India is under no obligation to reduce domestic support or subsidies currently extended to agriculture as the support being given is well below permissible level of 10 per cent of the value of its agricultural output. India were permitted to offer ceiling bindings instead of tariffication since India was maintaining QRs on Balance of Payment grounds. Anticipated increase in exports of agri-products has not materialised. Govt. have taken series of measures to safeguard agri-sector in context of phase-out of QRs -- i. e. , v v q q import duties on a large number of agro and other items have been substantially increased and import of 131 products have been made subject to compliance of Indian quality standards as applicable to domestic goods; Govt. can raise the applied tariffs within the bound levels and also take measures such as anti-dumping action, safeguard action, levy of countervailing duties under certain circumstances. Food & livelihood security of our people, protection of the interest of domestic farmers and maximising export opportunities for Indian agricultural products are guiding principles of India's proposals at WTO negotiations on agriculture.

Impact of WTO on other Indian Industry sector Pharmaceuticals v Threaten India's achievements in the pharmaceutical field, but most of companies emerged as a winner. v Forced 9 leading domestic pharma-companies to form Alliance demanding more transparent WTO regime for EMR (exclusive marketing rights) grants. Expecting a spate of mergers, acquisitions and alliances in the domestic pharmaceutical industry in the coming years. q Information technology v Indian hardware and software companies can become major players in the value-added arena. v Availability of high-skilled of IT personnel and low cost of labour and operation will allow India to compete in the international market. q Textiles and clothing v Phasing out of (Multi Fiber Agreement) MFA boosting textile exports from India. Also increase in investment in textiles and joint ventures. But risk of increase in import of textiles from countries e. g China, US, Taiwan etc. v Forcing many textile manufacturers to modernise mills & improve quality.

Impact of WTO on other Indian Industry sector q v v v Liquor companies Government forced to slash import duties on foreign liquor brands, affecting domestic liquor companies (Threat). Fear of Multinational liquor companies flooding Indian market with cheap, second-hand products. Liquor companies gearing up to meet the global challenge, charting new business plans to ensure that the local brands survive ultimately. The services sector Areas like banking, insurance, investment banking, health, and many other professional services opened up are bound by WTO commitments. Many overseas service providers have entered into the services sectors in the country, thereby reducing the chances of domestic enterprises. But experts believe India need not be frightened of the WTO rules on services because the country at present has a distinct competitive advantage in many areas that include health, engineering construction, computer software and other professional services.

Impact of China’s entry into WTO on India q v v Opportunities Increase the voice of developing nations in the WTO, enabling them to have their demands of greater protection to domestic industries accepted. Force Indian industry to become more competitive and shall pave the way for second-generation market reforms in India e. g. Labour market reforms, interest term structure reforms & basic infrastructure reforms shall spur growth and competitiveness by cutting costs. China's huge market a potential market for Indian goods & increasing domestic competitiveness can be leveraged by pushing exports. Potential for Indian industry to take advantage of the opportunity is large, but needs to be backed up with forward-looking strategic policy initiatives form the government. In rapidly globalizing world economy -no room for protectionism & industry must compete on its inherent strengths. Threats Indian exports uncompetitive and threaten traditional Indian strongholds such as textiles, tea and jewellery. Chinese goods may flood the Indian markets causing domestic producers to go out of business. (although there has been no perceptible increase in

POST WTO GLOBAL SCENARIO q v v WTO AS A GLOBAL POLICEMAN: First few years positive effect - Policing and enforcement mechanism Trade disputes between countries resolved by informal consultations or by formal procedures, Countries involved adopted WTO recommendations. EXPANDING TRADE AGREEMENTS: Open up trade in services. Regulations governing FDI in Telecommunications and Financial services CROPPING OF ISSUES (SEATTLE): National sovereignty – playing with national sovereignty of member states and making decisions of great importance behind closed doors. Environmentalists – Rate of global deforestation, protecting species from extinction Human Rights activists – Ban on imports employing child labour Labour unions – loss of jobs in high-wage countries due to import from lowwage countries.

FUTURE OF WTO: UNRESOLVED ISSUES q v v q v INCREASE IN ANTIDUMPING POLICIES: Many countries exploiting to pursue protection Many representative of businesses and their employees lobby Govt. officials in countries – to protect domestic jobs from unfair foreign competition. PROTECTIONISM IN AGRICULTURE: High level of tariffs and subsidies in the Agri sector of many economies Biggest defenders – advanced nations who want to protect their agricultural ssectors from comeptition by low-cost producers in developing nations. PROTECTING INTELLECTUAL PROPERTY: Reducing piracy rates in drugs, software and music recordings would have a significant impact on volume of world trade and increase in incentive for producers to invest in the creation of intellectual property. AGENDA AGREED IN DOHA ROUND: Cutting tariffs on industrial goods and services, phasing out subsidies to agri-producers, reducing barriers to cross-border investment (FDI) and limiting use of Antidumping laws.

FUTURE OF WTO: UNRESOLVED ISSUES LIKELY CONSEQUENCES OF TALKS BEING SUCCESSFUL: q GAINERS v Low-cost Agricultural producers in Developing nations and developed nations (Austrlai and United States) will see the global markets for their goods expand. v Developing nations also gain from the lack of adherence on labor standards. v Sick and poor countries also benefit from guaranteed acees to cheaper medicines. q LOSERS: v EU and Japanese farmers, US Steelmakers, environmental activists and pharmaceutical firms of developed world. v Expected to lobby their res[pective government hard in coming years to make sure that final agreement is more in their favor.

q q q q NEW ISSUES Trade and investment Trade and labour Trade and environment Trade facilitation Trade and competition policy Electronic commerce Transfer of technology

Criticism ü Even though WTO is a fairly new institution, there has been public scepticism and concern about how it functions since the beginning. ü When WTO was set up, the majority of developing countries were not at the table and were barely consulted. As a result, the WTO essentially protects MNCs based in the North and acts as a tool of rich and powerful countries - notably US, EU, Japan and Canada. ü Although majority of other WTO members are developing countries from Africa, Asia/Pacific and Latin America, many of them have little to say in decisions that are taken at WTO meetings. Don't have enough to offer from an economic standpoint to have any real power. The influential nations in the WTO focus on their own commercial interests. They also claim that the issues of health, safety and environment are steadfastly ignored. ü It does not rectify the multiple violations of the general principles of law which affect the dispute settlement mechanism.

Criticism ü Since Inception WTO has been a major focus for protests by civil society groups– Environment, Social & Human Rights issues. ü It is often argued that subsidies are needed to protect small farmers but, according to the World Bank, more than half of EU support goes to 1% of producers while in the US 70% of subsidies go to 10% of producers, mainly agri-businesses. The effect of these subsidies is to flood global markets with below-cost commodities, depressing prices and undercutting producers in poor countries – a practice known as dumping. ü The Ao. A is criticized for reducing tariff protections for small farmers – a key source of income for developing countries – while allowing rich countries to continue to pay their farmers massive subsidies which developing countries cannot afford.

Criticism ü Some examples of managing global economy impartially are: 1) 2) 3) 4) 5) rich countries are able to maintain high import duties and quotas in certain products, blocking imports from developing countries (e. g. clothing); the increase in non-tariff barriers such as anti-dumping measures allowed against developing countries; the maintenance of high protection of agriculture in developed countries while developing ones are pressed to open their markets; many developing countries do not have the capacity to follow the negotiations and participate actively in the Uruguay Round; and The TRIPs agreement which limits developing countries from utilizing some technology that originates from abroad in their local systems

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