UPSC IAS exam preparation - International Institutions - Lecture 4

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World Trade Organisation (WTO)

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1.0 Introduction

The World Trade Organisation (WTO) is an intergovernmental organisation which regulates multi-lateral global trade. It is made up of 164 member countries with many more countries willing to, and hence applying to join. Its main function is to ensure that trade between nations flows as smoothly, predictably, and freely as possible. It functions like a club, which national governments apply to join. If accepted as members, they commit to abide by the rules and settle disputes in an agreed upon way. Like most clubs, membership both provides rewards and requires obligations. In the case of the WTO, the rewards to each member are the economic benefits from liberalized trade; the obligations involve some mutually agreed upon codes of behaviour that are deemed acceptable in return for the benefits. Kazakhstan and Seychelles joined in 2015.

2.0 The origins

The General Agreement on Tariffs and Trade (GATT) was evolved in 1947 at a United Nations conference in Trade and Employment in Havana, Cuba. It was an international agreement that set out the rules for conducting international trade, and created an informal structure to administer the agreement. The text of the agreement could be compared to law, the structure and dispute settlement process to a combination of parliament and the courts. The WTO came into being in 1995 as the successor to the General Agreement on Tariffs and Trade (GATT).

The WTO was the result of the eighth round of negotiations, known as the Uruguay Round (1986-93). It was named for the country, which held the conference (at Punta del Este) leading to the decision to proceed. By the 1980s, a number of problems with the world trading system needed to be addressed: certain areas such as agriculture were exempt from GATT rules or were managed under separate agreements such as textiles; trade in services and intellectual  property were largely  outside the agreement; NTBs and new forms of protectionism were proliferating; and membership had grown to over 90 countries requiring the organization to be reformed.

The Uruguay Round was a complex set of negotiations undertaken to address the prevailing inadequacies of the GATT. The negotiations almost floundered on several occasions. The GATT Secretariat prepared an ambitious draft text in December 1991, but only after a breakthrough on agricultural issues between the United States and the European Community did a final agreement emerge in December 1993. In April 1994, in Marrakesh, representatives of 111 GATT member countries signed the Final Act incorporating the agreements which took effect in January 1995 when the WTO was launched.

The WTO club now has more members (164 at the time of writing), has rules covering more activities, and has a more effective means to resolve disputes between the members. It is headquartered in Geneva, Switzerland.

 The main differences between the GATT and the WTO are described by the WTO as follows:

1. The GATT was provisional. Its contracting parties never ratified the General Agreement, and it contained no provisions for the creation of an organization.
2. The WTO and its agreements are permanent. As an international organization, the WTO has a sound legal basis because all members have ratified the WTO Agreements, and the agreements themselves describe how the WTO is to function.
3. The WTO has "members". GATT had "contracting parties", underscoring the fact that officially the GATT was a legal text.
4. The GATT dealt with trade in goods. The WTO deals with trade in services and intellectual property as well.
5. The WTO dispute settlement system is faster and more automatic than the old GATT system. Its rulings cannot be blocked.
6. The WTO has introduced a trade policy review mechanism that increases the transparency of members' trade policies and practices.

3.0 THE STRUCTURE

The structure of the WTO is dominated by its highest authority, the Ministerial Conference, composed of representatives of all WTO members, which is required  to meet at least every two years and which can take decisions on all matters under any of the multilateral trade agreements.

The day-to-day work of the WTO, however, falls to a number of subsidiary bodies; principally the General Council, also composed of all WTO members, which is required to report to the Ministerial Conference. As well as conducting its regular work on behalf of the Ministerial Conference, the General Council convenes in two particular forms - as the Dispute Settlement Body, to oversee the dispute settlement procedures and as the Trade Policy Review Body to conduct regular reviews of the trade policies of individual WTO members.

The General Council delegates responsibility to three other major bodies - namely the Councils for Trade in Goods, Trade in Services and Trade-Related Aspects of Intellectual Property. The Council for Goods oversees the implementation and functioning of all the agreements (Annex 1A of the WTO Agreement) covering trade in goods, though many such agreements have their own specific overseeing bodies.

The latter two Councils have responsibility for their respective WTO agreements (Annexes 1B and 1C) and may establish their own subsidiary bodies as and when necessary.

Three other bodies are established by the Ministerial Conference and report to the General Council. The Committee on Trade and Development is concerned with issues relating to the developing countries and, especially, to the "least-developed" among them. The Committee on Balance of Payments is responsible for consultations between WTO members and countries which take trade-restrictive measures, under Articles XII and XVIII of GATT, in order to cope with balance-of-payments difficulties. Finally, issues relating to WTO's financing and budget are dealt with by a Committee on Budget.

Each of the four plurilateral agreements of the WTO - those on civil aircraft, government procurement, dairy products and bovine meat - establish their own management bodies which are required to report to the General Council.

3.1 The WTO Secretariat

The WTO has a Secretariat of about 640 persons headed by a Director General. It performs the following functions:

1. Provides technical support for the various councils, committees and conferences as well as technical assistance to developing countries
2. Analyzes world trade and explains the workings of the WTO to the public and the media
3. Provides some forms of legal assistance in the dispute settlement process and advises governments applying to become members of the WTO.

Many analysts see this structure and the WTO as increasingly legalistic especially in terms of handling disputes, because of which member countries need to have representatives in Geneva as well as persons at home in their trade or foreign ministry that can deal with the issues. This is an increasing burden on smaller and especially developing countries. It also means that effectively some member countries may be disadvantaged relative to others.

The annual budget of the WTO Secretariat is around 160 million Swiss francs (US$ 135 million). This comes from individual contributions from the members calculated on the basis of their share of global trade. The largest single contributor is the United States, at about US$ 21.5 million per year, though the EU countries together contribute nearly US$ 57 million. The WTO budget also supports the International Trade Centre, a capacity-building organization jointly supported by the WTO and the United Nations Conference on Trade and Development (UNCTD), and members make special contributions for technical assistance.

4.0 NATURE OF AGREEMENTS

Three types of agreements are at the heart of the WTO - goods, services, and intellectual property. The complete set consists of about 60 separate agreements, decisions and declarations, and a listing of the commitments - known as schedules - made by each member country. The schedules list the agreed upon custom duty rates and the commitments made by countries concerning the access allowed to their service industries. In all, this constitutes over 25,000 pages of material.

The agreements mirror parts of the WTO organization. The principal ones concern:

1. The General Agreement on Tariffs and Trade (GATT), whose mandate is to  eliminate all remaining tariff and non-tariff barriers to the movement of capital and goods across nation-state borders; 
2. The General Agreement on Trade in Services (GATS), which is the first multilateral, legally enforceable  agreement  on  trade  in  services. Negotiations are now underway to expand the scope  of the  GATS  to  potentially cover  all services, including key public services which could be opened to competition with transnational corporations and privatization; 
3. Trade Related Intellectual Property Rights (TRIPS), which sets enforceable global rules on patents, copyrights, and   trademarks  which restricts  access  to  life saving medicines,  and permits the patenting of many plant and animal forms, as well as seeds, opening the door to bio-piracy and the commodification of bio-diversity; 
4. Trade Related Investment Measures (TRIMS), which dictate what governments can and cannot do in regulating foreign investment; 
5. The Agreement on the Application of Sanitary and Phytosanitary Standards (SPS), which sets constraints on government policies relating to food safety and animal and plant health, ranging from those governing pesticide use and biological contaminants to policies on food inspection, product labelling, and genetically engineered foods; 
6. The Financial Services Agreement (FSA), which was established to remove obstacles to the free movement of financial services corporations, including banks and insurance companies. This opens the door to mega-mergers in the financial sector and the loss of local economic control; 
7. The Agreement on Agriculture (AoA), which sets rules on the international food trade and restricts domestic agriculture policy, including protection against dumping, protection for small-scale farmers producing for their domestic market, government support for farmers and sustainable agricultural practices, maintaining emergency food stocks, and ensuring that citizens have an adequate food supply; 
8. The Agreement on Subsidies and Countervailing Measures (ASCM), which sets limits on what governments may and may not subsidize and contains many loopholes favouring wealthy countries and agribusiness; 
9. The Agreement on Technical Barriers to Trade (TBT), set up to limit national regulations (non-tariff barriers) that interfere with trade, such as eco-labelling regulations; 
10. The Agreement on Government Procurement (AGP),  which  sets limits on government purchasing,  including  "domestic  content"  or community development requirements.

5.0 WTO TRADING PRINCIPLES

 5.1 Principles

 The WTO trading systems works on the following principles:

1. The trading system should operate without discrimination. This means that a member country should not discriminate between its trading partners. They are all to be treated equally on a most-favoured-nation (MFN) and national treatment basis. For example, an importing country should not apply different tariffs to the same product or producers of the same product of different exporting member countries; each exporting country should face the lowest (most-favoured) tariff on a good applied by the importing country. National treatment means that each country agrees to treat foreign and domestic products and producers equally inside the country. 
2. The trading system should become freer over time with tariff and non-tariff barriers (NTBs) coming down through successive rounds of negotiation. This has been achieved in large measure through the lowering of tariffs on goods but much room exists to reduce NTBs for goods, and all kinds of barriers to trade in services. 
3. Predictability is a third principle. This refers to the need to ensure foreign companies, investors, and governments that trade barriers will not be raised arbitrarily, and that all trade related policies are transparent to foreigners. 
4. The trading system has to be made more competitive by discouraging unfair practices such as subsidizing exports and dumping products in foreign markets. Dumping occurs when products are sold in foreign markets at a lower price than in domestic markets and harm is created to industries in the foreign markets. 
5. It is recognised that not all countries are equal and less developed countries may require special treatment; for example, longer periods for their industries to adjust to the lowering of tariffs.

 5.2 No Quantitative Restrictions (QRs)

In addition to the principles discussed above, the WTO has an important principle applicable to trade in goods. In the case of goods, the WTO postulates that tariffs should normally be the only instrument used to protect domestic industry.

Traditionally, international flow of goods is subject to various nontariff barriers, such as quotas and licencing. Economists agree that quantitative restrictions such as quotas are more harmful than tariffs as means of protecting domestic industries because quotas create more distortion than tariffs. Thus, the GATT (predecessor of the WTO) provided that, if some restrictions are necessary, they ought to be in the form of tariffs (not quotas).

In reality, however, agricultural products (and textiles and clothing) have long been subject to various quantitative restrictions. Previously more than 30% of agricultural produce had faced quotas or other quantitative restrictions. The Uruguay Round, in which negotiations were made in 1986-1994, made agricultural products closer to the basic principle of the GATT/WTO. The new rules for market access in agricultural product are now "tariff only".

Under the new system, all quantitative restrictions must be replaced by tariffs. The initial levels of protection can be equivalent; i.e., if, due to quotas, domestic prices were 50 percent higher than world prices, then the new tariff could be 50 percent. The process is called "tariffication". Member countries agreed that developed countries would cut the newly committed tariffs by an average of 36 percent, in equal steps over six years. Developing countries would make 24 percent cuts over ten years.

5.3 Actual working of the WTO principles

In contradiction to the existence of these strong principles, the WTO Agreements contain an extensive range of measures that permit members at least to modify, and at times to escape, their obligations. Some examples are:

1. Grandfathering pre-existing preferences: This means that if, at the time of signing the agreement, a country gives some trading partners preferential treatment it can continue to do so. 
2. Regional  trade agreements (RTAs): Countries  can be members of regional trade agreements, as well as the  WTO  even  though there are different obligations. This represents a derogation of the MFN principle but is allowed under certain conditions.
3. Waivers: Waivers to obligations are permitted in certain exceptional circumstances. For instance, the United States received a waiver in the case of the Canada–United States Automotive Agreement (Auto Pact). 
4. Non-application of national treatment: The national treatment principle does not apply to government procurement or to the provision of subsidies for domestic production. 
5. General  Exceptions: General exceptions are permitted in cases where government measures, although restrictive of trade, are required for reasons of: public morals; human, animal, plant life and health; compliance with domestic regulations; trade in gold and silver; the products of prison labour; conservation of natural resources; protection of national treasures; and participation   in international commodity agreements. 
6. National Security: Actions can be taken to protect national security. 
7. Food and human security: Temporary export prohibitions are permitted in the case of critical shortages of food and essentials. 
8. Balance of payments: A country can take measures to alleviate a balance of payments problem. 
9. Safeguards and countervailing duties:  Allowance is made for safeguards against injury caused to domestic   industries  by   sudden increases in imports of products. In addition, a country has the ability to address cases of dumping, and to provide countervailing duties against subsidies. 
10. Concessions: A country has the ability to reduce or withdraw concessions offered. 
11. Developing countries: Special  conditions are provided for developing countries.

 5.4 The WTO Dispute Settlement Understanding (DSU)

The history of the dispute settlement under GATT does not give a clear answer to the question whether the dispute settlement is oriented towards "conciliation" or "rule integrity". On the one hand, many specialists and diplomats see the GATT/WTO mainly as a negotiating forum. On the other hand, there are signs that the practice is evolving in the direction of "rule integrity".

 5.4.1 The procedure

The Dispute Settlement Body (DSB), which comprises all WTO members, has the authority to establish panels, adopt panel and Appellate Body reports, maintain surveillance of the implementation of rulings and recommendations, and authorize suspension of concessions and other obligations under WTO agreements. If a member considers that a benefit accruing to it directly or indirectly under the WTO agreements is being nullified or impaired, it must first request bilateral consultations. If consultations fail to settle the dispute, the complaining party may request the establishment of a panel, which must be created unless the DSB decides by consensus not to do so.

A panel is generally composed of three panelists and its deliberations are confidential. Panels must conduct examinations within six months. Within 60 days of the date of circulation of a panel report to WTO members, the report must be adopted at a DSB meeting unless a party to the dispute formally notifies the DSB of its decision to appeal or the DSB decides by consensus not to adopt the report. The Appellate Body, a standing tribunal created in the Uruguay Round, considers any appeals. The tribunal consists of seven members, of whom three serve on any given case. Appellate Body proceedings are not to exceed 60 days and are confidential. When a panel or the Appellate Body concludes that a measure is inconsistent with a covered agreement, it must recommend that the member concerned bring its measures into conformity with the WTO agreement. The last recourse for countries in enforcing compliance with DSB recommendations and rulings is the suspension of concessions (retaliatory action).

6.0 TRIPS, TRIMs, and GATS

 

6.1 TRIPS

Trade Related Intellectual property Rights (TRIPS) seek to protect the interest of inventors and developers of products and processes from being copied by others.

The main features of TRIPs agreements are:

1. Minimum standards of protection to be provided by each member
2. Domestic procedures must be put in place for enforcement of IPRs by each member nation
3. 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.

6.1.1 Positive implications of TRIPs agreement

Patents: Under Agreement on TRIPs, protection is given to patents, copyrights, layout designs etc. For ex. 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.

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.

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 ex. India has obtained GIS for Darjeeling Tea and also for other products. This means, only Indian firms can use Darjeeling Tea brand, which shows that the Darjeeling Tea produced in India is unique.

6.1.2 Negative implications of TRIPs agreement

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.

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.

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.

6.2 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

1. Obligation on foreign investors to use local inputs
2. To produce for exports as a condition to obtain imported inputs
3. To meet export obligation
4. Employment of local people
5. Technology Transfer requiements
6. Use of specific production technology
7. Local equity requirement  and
8. 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.

6.2.1 Positive impact of TRIMs

TRIMs agreements have a positive impact on developing countries as foreign investment is treated at par with domestic investment. For ex. 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.

6.2.2 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.

6.3 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.

6.3.1 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.

 6.3.2 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.

7.0 WTO AND THE INDIAN ECONOMY

The signing of WTO agreements will have far reaching effects not only on India's 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.

7.1 Positive impact

The Positive impact of WTO on India's economy can be viewed from the following points:

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 India's share in world exports would improve.

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.

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 was to be removed only in the tenth year, i.e. 2005. The removal of quotas benefit not only India but also every other country.

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.

Growth to services exports: Under GATS agreement, member nations have liberalised service sector. India would benefit from this agreement. For ex. India's services exports have increased from about USD 5 billion in 1995 to more than USD 150 billion in 2018. Software services accounted for about 45% of service exports.

7.2 Negative impact

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 monopoly of patent holding MNCs. As a member of WTO, India has to comply with standards of TRIPs.

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.

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.

Microorganisms: The Agreement on TRIPs also extends to Microorganisms as well. 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.

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.

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. The domestic firms of developing countries may find it difficult to compete with giant foreign firms due to lack of resources & professional skills.

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.

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.

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.

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.

7.3 The India-WTO stand-off

In 2013 & 2014, there was a virtual stand-off between the WTO and the Indian Government over the issues of agricultural stocking and calculation of subsidies. At the heart of the issue is the Trade Facilitation Agreement which aims to fast track any movement of goods among nations by cutting down bureaucratic procedures. However, there is a clause in the TFA which says that governments cannot give subsidies of a value more than 10% of the value of agricultural production.

In 2013 the Indian Parliament enacted the Food Security Act within which aims to provide very cheap food to the most vulnerable sections of the Indian population at extremely low prices. In this process subsidies are provided to the consumers through the Public Distribution System (PDS).The producers of food grains by buying the produce at minimum support prices and providing subsidised inputs like fertilisers and electricity.

The 10% cap on subsidies is calculated based on 1986-88 prices when the prices were much lower. This lowers the cap still further. The 10% cap on subsidies which will not be possible for India to achieve. Hence the cap has to be updated taking into account the present prices of food grains. For providing subsidised food, India will have to open up its own stockpiling to international monitoring. It will not be able to add protein heavy grains like say, lentils, if it wants to, due to riders in the peace clause.

The United States obtained a permanent waiver from substantial obligations in agriculture in 1955. The European Union implemented an elaborate system of protection for its farmers through huge subsidies. This resulted in severe distortions in the production and trade of agricultural products. Some degree of discipline in agriculture was introduced through the Uruguay Round Agreement on Agriculture. When the Doha Round was launched, it was expected that a significant reduction, if not full elimination of the distortions, would be achieved in the negotiations. The United States provides subsidies of approximately $20 billion to its farmers annually but is exempt from the 10% cap on agricultural subsidies.

In December 2013, an agreement was reached at in Bali wherein it was decided that as an interim measure, in respect of public stockholding for food security, developing countries would be protected from WTO disputes for non-compliance with the relevant provisions of the Agreement on Agriculture. This protection would be available till a permanent solution, the deadline for which was 2017.

The deadline for agreeing to the TFA was 31st July 2014. However, India wanted the talks on public stockholding for food security to happen immediately, an issue that has domestic compulsions in India. For the government, the issue of livelihood of its marginal farmers is a deeply political one, especially in light of the stockpiling needs on account of requirements of the Right To Food Act. India had insisted that, in exchange for signing the trade facilitation agreement, it must see more progress on a parallel pact giving it more freedom to subsidise and stockpile food grains than is allowed by WTO rules. India's new government insisted that a permanent agreement on its subsidised food stockpiling must be in place at the same time as the trade facilitation deal, well ahead of a 2017 target set last December in Bali. This led to India using its veto power to block the TFA two hours before the deadline was supposed to end.

In the G-20 summit held in Australia in November 2014, India and the US after months of stalemate agreed to resolve their differences over food stock holdings, reopening the way for future implementation of the Trade Facilitation Agreement at the World Trade Organization. According the agreement that was reached, the United States agreed to a "peace clause" which protects member countries that breach farm subsidy caps under the Agreement on Agriculture from being challenged at the WTO. The Peace Clause will continue indefinitely until a permanent solution is found. The US agreed to Indian demands to rewrite the peace clause to give adequate protection to such member countries.

The WTO’s Eleventh Ministerial Conference was held in Argentina, in December, 2017. Kazakhstan became the first Central Asian nation to host a MC in 2020.

8.0 CRITICISM OF THE WTO

Despite being a legal association of the world’s nations - both developing and developed - allegations against the WTO range from the realistic to the wild! Like everything else in this world, the truth may lie somewhere in the middle.

The WTO is fundamentally undemocratic: The policies of the WTO impact all aspects of society and the planet, but it is not a democratic, transparent institution. The WTO rules are written by and for corporations with inside access to the negotiations. For example, the US Trade Representative gets heavy input for negotiations from 17 "Industry Sector Advisory Committees". Citizen input by consumer, environmental, human rights and labor organizations is consistently ignored. Even simple requests for information are denied, and the proceedings are held in secret. So a genuine question can be - who elected this secret global government?

The WTO will not make us safer: The WTO is based on the premise that creating a world of "free trade" will promote global understanding and peace. On the contrary, the domination of international trade by rich countries for the benefit of their individual interests fuels anger and resentment that make us less safe. To build real global security, we need international agreements that respect people's rights to democracy and trade systems that promote global justice.

The WTO tramples labour and human rights: WTO rules put the "rights" of corporations to profit over human and labor rights. The WTO encourages a 'race to the bottom' in wages by pitting workers against each other rather than promoting internationally recognized labor standards. The WTO has ruled that it is illegal for a government to ban a product based on the way it is produced, such as with child labor. It has also ruled that governments cannot take into account "non commercial values" such as human rights, or the behavior of companies that do business with vicious dictatorships such as Burma when making purchasing decisions.

The WTO would privatize essential services: The WTO is seeking to privatize essential public services such as education, health care, energy and water. Privatization means the selling off of public assets - such as radio airwaves or schools - to private (usually foreign) corporations, to run for profit rather than the public good. The WTO's General Agreement on Trade in Services, or GATS, includes a list of about 160 threatened services including elder and child care, sewage, garbage, park maintenance, telecommunications, construction, banking, insurance, transportation, shipping, postal services, and tourism. In some countries, privatization is already occurring. Those least able to pay for vital services - working class communities and communities of color - are the ones who suffer the most.

The WTO is destroying the environment: The WTO is being used by corporations to dismantle hard-won local and national environmental protections, which are attacked as "barriers to trade." The very first WTO panel ruled that a provision of the US Clean Air Act, requiring both domestic and foreign producers alike to produce cleaner gasoline, was illegal. The WTO declared illegal a provision of the Endangered Species Act that requires shrimp sold in the US to be caught with an inexpensive device allowing endangered sea turtles to escape. The WTO is attempting to deregulate industries including logging, fishing, water utilities, and energy distribution, which will lead to further exploitation of these natural resources.

The WTO is increasing inequality: Free trade is not working for the majority of the world. During the most recent period of rapid growth in global trade and investment (1960 to 1998) inequality worsened both internationally and within countries. The UN Development Program reports that the richest 20 percent of the world's population consume 86 percent of the world's resources while the poorest 80 percent consume just 14 percent. WTO rules have hastened these trends by opening up countries to foreign investment and thereby making it easier for production to go where the labor is cheapest and most easily exploited and environmental costs are low.

The WTO hurts poor, small countries in favor of rich powerful nations: The WTO supposedly operates on a consensus basis, with equal decision-making power for all. In reality, many important decisions get made in a process whereby poor countries' negotiators are not even invited to closed door meetings - and then 'agreements' are announced that poor countries didn't even know were being discussed. Many countries do not even have enough trade personnel to participate in all the negotiations or to even have a permanent representative at the WTO. This severely disadvantages poor countries from representing their interests. Likewise, many countries are too poor to defend themselves from WTO challenges from the rich countries, and change their laws rather than pay for their own defense.

 WTO TRADE BAROMETERS

• The WTO has developed a set of indicators to provide "real-time" information on trends in world trade. 
• The Goods Trade Barometer, formerly the World Trade Outlook Indicator, is a leading indicator that signals changes in world trade growth two to three months ahead of merchandise trade volume statistics. 
• The Services Trade Barometer (started Sept. 2019) is a coincident indicator that illustrates the current state of services trade slightly ahead of official statistics. Both barometers are intended to complement conventional trade statistics and forecasts.
• Goods Trade Barometer - The Goods Trade Barometer combines a variety of trade-related component indices into a single composite index that highlights turning points in world merchandise trade and provides an indication of its likely trajectory in the near future. The barometer index shows how the latest data compare with short-run trends in goods trade. A reading of 100 indicates trade expansion in line with recent trends. Readings greater than 100 suggest above-trend growth while readings below 100 indicate below-trend growth. The Goods Trade Barometer is updated on a quarterly basis.
• Services Trade Barometer - The WTO launched a new Services Trade Barometer in September 2019 as a companion to the Goods Trade Barometer. Like its counterpart for goods, this barometer highlights turning points and illustrates changing patterns in world services trade. The Services Trade Barometer will be issued twice a year. The barometer combines six component indices into an overall composite index. Releases will include a measure of previous services trade activity to serve as a point of comparison to the barometer index. The Services Activity Index provides an approximate measure of the volume of world services trade and is calculated by adjusting the value of services trade to account for changes in prices and exchange rates.
• Readings of 100 in the services barometer indicate growth in line with medium-term trends; readings greater than 100 suggest above-trend growth while those below 100 indicate the opposite. The direction of change reflects momentum compared to the previous month. 

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