16.
World Trade Organisation and its Implications 879
Chapter 16
WORLD TRADE ORGANISATION AND ITS IMPLICATIONS
The World Trade Organization (WTO), which was established in 1995
as a successor to the General Agreement on Tariffs and Trade 1947 (GATT
1947), is the principal international organization governing multilateral trade
among Members. The WTO enshrines the principle of non-discrimination,
based on the twin concepts of Most Favoured Nation (MFN) and national
treatment between Members. This implies that a benefit related to trade in
goods and services given to a Most Favoured Nation has to be extended to all
other Members; and that exports from a Member can not be discriminated
against vis- -vis domestic products of the importing Member.
i
The WTO administers the implementation of a set of agreements,
which include the General Agreement on Tariffs and Trade, other agreements
in the goods sector (e.g., agriculture, textiles, sanitary and phytosanitary
measures, trade related investment measures, anti-dumping, etc.), and in
addition, agreements in two other areas, viz., trade in services, and trade
related intellectual property rights. The WTO agreements were negotiated on
the basis of a single undertaking, which implies that membership to the
organization obligates the acceptance of the results of the Uruguay Round of
multilateral trade negotiations without exception. Plurilateral agreements,
such as the Government Procurement Agreement, were not a part of this
single undertaking, and Members of the WTO have the option to accede or
not to them.
The emergence of the WTO with its sweeping mandate and
enforcement mechanisms has far reaching implications for developing
countries. For India a founding member of the GATT-1947 and the WTO
this new rule-based system provides both opportunities and challenges. The
importance of WTO in trade creation and increasing market access for
Members is widely acknowledged. However, there are also areas of serious
concern for developing countries like India emanating from rights and
obligations under certain agreements in the WTO. These include the
following:
Agreement on Agriculture (AoA): The WTO Agreement on
Agriculture (AOA) was one of the many agreements negotiated during the
Uruguay Round of multilateral trade negotiations.
International trade in agricultural commodities has witnessed serious
distortions over the years because of massive production and export
subsidies given by the developed countries. While this has contributed to
excess production, the industrialized world also imposed import restrictions to
prevent imported agricultural products from reaching domestic markets. With
the purpose of correcting these trade distortions, the AoA provides for (a)
reduction in domestic subsidies, (b) reduction in export subsidies, and (c) tariff
binding and progressive reduction of tariffs in agricultural commodities, i.e.,
market access.
16. World Trade Organisation and its Implications 880
The commitments for India under the AoA are as follows:
(i) In respect of domestic support, reduction commitments have been
prescribed for trade-distorting subsidies covered by the Amber Box, while
Green Box subsidies which are not deemed to be trade-distorting and Blue
Box subsidies which are considered minimally trade-distorting are exempted
from reduction commitments. For India, since the total Aggregate
Measurement of Support (AMS) is negative, India is not required to undertake
reduction commitments in any of its product or non-product-specific support
programmes, including market price support. Moreover, the domestic support
extended to low-income and resource poor farmers is exempted from any
reduction commitments for developing countries, under Article 6.2 of the AoA.
Even so, the margins between the ceiling level of support and actual
subsidies provided by India are gradually diminishing.
(ii) In respect of export subsidies, except for marketing and transport
subsidies, exporters of agricultural commodities in India do not get direct
subsidies, which come under WTOs reduction commitments.
(iii) India did not undertake any commitments in regard to market
access, since it was maintaining quantitative restrictions on imports due to
BOP reasons. The only commitment India undertook in 1995 was to bind its
tariff rates for primary agricultural products at 100 per-cent, processed foods
at 150 per cent, and edible oils at 300 per cent
The implementation of the AoA has revealed serious implications for
domestic agricultural production and farm incomes in India. In the post
Uruguay Round phase, it is mainly the markets of the developing countries
which have opened up; at the same time, the share of exports from these
countries continue to hover around 30% of the world trade in agriculture. The
anticipated rise in exports from the developing to the developed world has not
materialized. In a synthesis of country case studies done by the FAO on the
implications of the AoA on developing countries, it has been observed that
there was asymmetry in the growth of food imports and the growth of
agricultural exports. While trade liberalization had led to surge in food
imports, these countries were not able to raise their exports. It has been
further observed that the process has marginalized small producers.
1
The
challenge for developing countries, including India, thus lies in maintaining an
appropriate mechanism to safeguard the livelihood of its vast population
engaged in agriculture.
Quantitative Restrictions (QRs)- The WTO provides that trade
restrictions, i.e., prohibitions or restrictions (other than duties) made through
quotas, import or export licenses or other measures shall not be maintained
by any Member, except those maintained for BOP purposes or consistent with
the provisions of Articles XVII, XX and XXI of GATT 1994.
India phased out quantitative restrictions on imports maintained for
BOP reasons by 1 April 2001.
1
Item included in Negotiations on WTO AoA Proposals by India (G/AG/NG/W/102),
15 January, 2001
16. World Trade Organisation and its Implications 881
However, removal of QRs does not imply duty-free imports, nor does it
mean removal of all import controls. To deal with the adverse fall-out of QR
phase-out, several measures are possible: tariff adjustments within bound
levels, levy of anti-dumping duties, countervailing duties on subsidized
imported goods, safeguard action such as duties and temporary imposition of
QRs. Non-tariff Measures (NTMs) such as Sanitary and hytosanitary (SPS)
measures are also available for ensuring quality and hygiene of imports,
especially agricultural and food items.
The 1994 WTO agreement, which brought agriculture within its policy
framework for the first time, is inherently unequal among nations. Its
implementation in the last six years has also shown that countries such as India
have been unfairly treated, with industrialized nations not adhering to the WTO
norms, further endangering the livelihood systems of the poor farmers,
particularly in the developing countries.
To protect themselves, the industrialized countries introduced a number
of safeguards such as the Blue and Green Boxes in the WTO agreement that
provide them with cover for providing domestic support (read subsidies) for their
farmers. The provisions in the Green Box include policies that provide services
or benefits to the agriculture or rural community, stockholding for food security,
domestic food aid, investment subsidies and agricultural input subsidies for low-
income and resource-poor families. The provisions in the Blue Box include direct
payments to farmers under production-limiting programmes. For example, the
United States operates an extensive scheme to match production and projected
market demand. The farmers are paid not to produce a crop, yet the payment is
not called a subsidy. This has helped ensure a steady and assured income to
the farmers.
Thus, the industrialized nations have, through such mechanisms as also
by putting up high tariff barriers (such as Japans 2000 percent import duty on
rice), ensured that the hoped for enlarged market access to the agricultural
commodities from developing countries does not materialize. In contrast, the
developing countries markets have been opened up without any support
systems and adequate proactive planning.
The removal of QRs would further endanger the livelihood systems of the
poor farmers as the extent of domestic support to farming families is far below
even the WTO-prescribed ceiling. There are also no export subsidies in India. In
contrast, the total farm support increased by 8 percent to $363 billion in 1998 in
OECD countries.
It is essential that we press for a Livelihood Box that would allow us to
impose QRs. This must be done wherever there is clear evidence that such
imports will kill livelihood opportunities for small and marginal farmers and
landless agricultural labour, or those involved in small-scale agro-processing and
agri-business activities.
Globalisation has promoted jobless economic growth. Without a
Livelihood Box, we will not be able to stimulate job-led economic growth, which is
the only path available to us to overcome poverty and chronic hunger. We
should also recognize that our population is increasing every year by nearly 17
million. If our agriculture goes wrong, nothing else in our economy and social
fabric will have a chance to go right.
[from Livelihood Security must be the bottomline-
Frontline, February 16, 2001- Interview with Dr. M.S. Swaminathan]
16. World Trade Organisation and its Implications 882
Trade Related Intellectual Property Rights (TRIPs)- Intellectual Property
Rights (IPRs) refer to the legal ownership of by a person or business of an
invention/ discovery attached to a particular product/ process which protects
the owner against unauthorized copying or limitation.
The IPRs are of seven types, viz., copyrights, trademarks,
geographical indications, industrial designs, patents, integrated circuits and
trade secrets. A patent is a statutory privilege granted to the inventors and
other persons deriving their rights from the inventor, for a fixed period of
years, to exclude other persons from manufacturing, using or selling a
patented product or from utilizing a patented process or method.
Under TRIPs, all countries have to provide for protection of product
patents from January 1, 1995. But developing countries like India, which did
not have a regime of product patents, had a transition period of ten years-until
January 1, 2005, to affect the switch over. During this transition period, they
have to accept applications for patents (which would be considered and
granted after January 2005) and provide EMR (Exclusive Marketing Rights)
for the producers of patented drugs (in the pharmaceutical industry) and agro-
chemicals.
The TRIPs Agreement purports to bring in uniformity in the standards
of intellectual property rights among the WTO irrespective of their
development status. While this is expected to result in technology transfer and
flow of investment among the Members, the extent of benefits accruing will
depend on domestic industries and the status of development of the
countries.
The emergence of TRIPs in the WTO is the catalyst that led to
transformation in Indias policy on patents. The impact of TRIPs on two fields,
viz., pharmaceuticals and agriculture, has been the most controversial in the
country. Opponents of raising patent standards fear that allowing product
patents in India would destroy the flourishing pharmaceutical industry (ranking
fifth in the world in terms of production of pharmaceutical products), as firms
would no longer be able to find alternative processes to produce patented
drugs abroad. In agriculture, there are fears that the new patent regime will
affect Indias agricultural policy, since Indias patent policy allowed very little
scope for patents in agriculture. First, although TRIPs excludes plant varieties,
there is confusion internationally on what would require patent protection, for
Indias priorities in WTO negotiations on agriculture would include the
protection of domestic agricultural production and the welfare of farmers by
conceding minimal market access and making nominal commitments. It is
necessary to have methodologies for minimal tariff reduction and safeguards
against import surges, particularly in sensitive items. Currently, developed
countries have these provisions while developing and less developed countries
do not. India is also seeking steep reduction in all forms of trade-distorting
domestic support and export subsidies by developed countries. The country is
in favour of retaining marketing and transport subsidies on exports.
[from Business Standard - 05.12.2002]
16. World Trade Organisation and its Implications 883
example, plant parts. However, sui generis system for plant protection is an
answer. Second, India has revised its patent law to allow applications for
product patents in agrochemicals, opening up an important field to patent
protection. Third, several multinational firms have begun filing patent
application in areas related to agriculture and agricultural biotechnology in the
country. The lack of capability of domestic actors to acquire patents in the
field could have enormous implications.
Geographical Indications- The TRIPs Agreement provides for mutual
recognition of geographical indications. The Agreement contains a provision
that a member shall provide the legal means for interested parties to prevent
the use of any means in the designation or presentation of a good that
indicates or suggests that the good in question originates in a geographical
area other than the true place of origin in a manner which misleads the public
as to the geographical origin of the good. There is, however, no obligation
under the Agreement to protect geographical indications which are not
protected in their country of origin or which have fallen into disuse in that
country. In India, a law has been enacted and would be applicable from the
day to rules are notified.
In this area there has been some gains in the last WTO Ministerial in
2001 wherein it was indicated, Issues relating to the extension of the
protection of geographical indications to products other than wines and
spirits will be discussed in the Council of TRIPs. This may provide an
opening for protecting some of the geographical indications of interest to
India, in products such as Basmati rice, Darjeeling tea, etc.
Trade in Services - According to General Agreement on Trade in
Services (GATS), the Most Favoured Nation (MFN) and transparency are
two obligations that apply to all services. This is the first set of multilateral
legally enforceable rules covering international trade in services. The
commitments, viz., market access and national treatment apply according to
specified negotiated commitments only and subject to conditions incorporated
in the Schedule of Commitments. The Agreement covers all the four modes of
delivery of a service, including cross-border supplies, commercial presence
and movement of natural persons. The services include, international
telephony, tourism and education abroad, banking, legal advice and
communication as part of 12 major sectors and 161 sub sectors.
Movement of natural persons is of special importance to India as the
country enjoys a distinct comparative advantage in this area covering a whole
range of services from computer and related services to hotel, health,
engineering, construction and other professional services. However, hardly
any commitment was made was made by the developed countries in regard to
this mode for delivery of services under GATS.
Agreement on Sanitary and Phytosanitary Measures (SPS), and
Technical Barriers to Trade (TBT) - These two WTO agreements have
important implications for the Indian food industry. The SPS Agreement refers
to the food and agriculture sector, and the agreement aims to protect human,
animal and plant life and health including from pests and diseases arising out
of imports of food and agricultural products. The TBT Agreement refers to all
products including food products. The TBT Agreement deals with product
16. World Trade Organisation and its Implications 884
specifications such as size, shape, weight and packaging material
requirements including labeling and handling safety.
The standards applied under the provisions of the SPS and TBT
Agreements can act as barriers to trade. Developed countries, notably the
EU, have been prolific in using the SPS and TBT measures and Indian goods
such as peanuts, marine products, mushrooms, etc have often been denied
access to the EU market on SPS/TBT grounds. Thus it is a rather thin dividing
line, which exists between safety and protection.
Trade and Environment The Multilateral Environment Agreements
(MEA) are being brought in as part of the agreements on international trade.
The Doha Declaration mandated negotiations on certain aspects of trade and
environment relating to WTO rules and trade procedures for exchange of
information between MEA and the WTO, and reduction/ elimination of tariff
and non-tariff barriers on environmental goods and services.
There is widespread concern in the developing world, including India,
that environment and social issues, which has been brought into the work
programme of WTO, have the potential of being used as trade distorting
measures. There is also a very strong view that trade is basically aimed at
exploiting markets, and the preservation of the environment is not in
consonance with this objective, and hence should be outside its purview.
Trade and Investment The introduction of the investment issue to
the Uruguay Round was a departure from the multilateral trade regime.
Despite resistance from the developing countries, the Agreement on Trade
Related Investment Measures (TRIMs) was incorporated in the final Act of
the UR. The TRIMs Agreement requires Members to phase out performance
requirements such as local content requirements and foreign exchange
neutrality.
There are many implications for the developmental objectives for the
host country in terms of inviting foreign investment under this Agreement. A
multilateral framework cannot guarantee an increase in FDI inflows although it
threatens to adversely affect the quality of the inflows. The link between trade
and investment is also somewhat ambiguous. The bulk of FDI flows continue
to be market-seeking (or tariff-jumping) type, and these inflows actually
substitute trade.
There are also many other areas wherein India is faced with the need
to be both proactive and reactive in terms of WTO issues. New areas, which
are essentially non-trade issues are being sought to be brought under the
WTO agenda. Among these, the investment and competition policy, along
with trade facilitation and transparency in government procurement, (the
Singapore issues) are subjects, which need to be examined in detail before
the next WTO ministerial at Cancun, Mexico, in September 2003.
16. World Trade Organisation and its Implications 885
Impact of WTO on TN Agriculture and Agro-based Industries
An estimated 62 percent of the total workforce in Tamil Nadu derives
their livelihood from the primary sector. It is a matter of concern that the
contribution of this sector to the overall GSDP of the State has been declining.
The State Government has committed itself to achieving an agricultural
growth rate of 4 % during the Tenth Plan Period. While this would call for
increase in agricultural production and productivity, attention would also have
to be paid to increasing public-private investment in this sector.
Under the aegis of the WTO, minimum market access and reduced
tariffs are expected to create a wider market for Indian/ TN exports. It will be
necessary for TN to exploit the market access opportunities in commodities
where it has comparative advantage and export surplus potential, like
sugarcane, turmeric, banana, mango, grapes and tea.
The percentage of Aggregate Measure of Support (AMS) is negative for
the agricultural commodities like mangoes, banana, potatoes, onion, cotton,
chillies, oilseeds and tea. Except chillies, most of the commodities besides
turmeric (for which TN is already one of the major exporters) are highly
competitive and potential exists for export of these commodities if the
developed countries open up their market for import.
Tamil Nadu has also has a comparative advantage in horticultural and
floricultural produce. Processed agricultural commodities provide a new
potential for export to Asian and European countries. However, this potential
needs to be further augmented by improving the infrastructure in processing,
cold storage, transportation, etc.
(from article on Indian Agriculture and Management in the context of World
Trade Organisation by C. Ramasamy, N. Raveendren & N. Ajjan of TNAU)
16. World Trade Organisation and its Implications 886
This chapter prepared with the assistance of Tmt. Moana Bhagabati, Madras Institute of
Development Studies was vetted by Thiru Gopalan, I.A.S. (TN), Joint Secretary, Ministry of
Commerce, GOI
Challenge to Industries
As the economy opens up further under WTO rules, TNs firms face
three key challenges: First, they face much greater competition at home, in
the domestic market from cheaper imports on the one hand, and from
better quality, higher value-added imports from advanced industrial
countries, on the other. Second, to succeed, firms will have to increasingly
compete in the international market. Entering the international market will
not be easy, particularly for firms whose production strategy depended
upon the old protections of the Indian market. The key challenge facing
firms is how to break out of bottlenecks that have stymied productivity in the
past, and meet international production standards to successfully penetrate
overseas markets.
Finally, the international economy in which Tamil Nadus firms are
beginning to compete today is itself dramatically different from previous
decades. What it takes for a firm to compete successfully in the
international economy today is starkly different than in previous periods. In
contrast to the stable markets of even a few decades ago, the international
economy today is much more volatile and unpredictable. It demands much
higher standards of product quality, much greater product variety, and
compliance with tough environmental and (increasingly) labor standards,
just-in-time delivery and quick turnaround times. Rapid technological
change, shortened product cycles, massive FDI flows across countries, and
an intensely competitive environment have all produced a new geography
of production where growth is increasingly based on innovation and new
cross-border alliances, rather than low costs alone. To compete
successfully in this world, therefore, Tamil Nadus firms will have to
compete both, on cost, as well as on quality, consistency and quick delivery
times.
