Chapter 28: WTO – Development

28.1 Introduction 28.2 Salient features of WTO

28.2.1 Agreement on Agriculture

28.2.2 Agreement on Manufactured goods

28.2.3 Multi fiber Arrangement

28.2.4 Agreement on Trade related Investment measures

28.2.5 Agreement on Trade related Intellectual Property Rights

28.2.6 Agreement on Services

28.2.7 Disputes Settlement Body

28.3 Evaluation of WTO

28.3.1 Geneva Talks -1998

28.3.2 Seattle Talks-1999

28.3.3. Doha Round Talks-2001

28.3.4 Cancun Talks-2003

28.3.5 Post-WTO Regime

28.4 Summary

28.5 Check your Progress

28.6 Key Concepts

28.7 Self-Assessment Questions

28.8 Answers to check your progress

28.9 Suggested Readings

Objectives:

After studying this lesson, you will be able to understand

Meaning of General agreement on terms of trade

Genesis of World Trade Organization

Role of WTO in economic development

28.1 Introduction:

As regards trade relations, the experience of past four decades or so reveals that under

developed countries faced the problem of unfavourable balance of trade. This problem

was sought to be solved trough GATT, now replaced by World Trade Organization

(WTO). Unfortunately, GATT could not bring comfort to the less developed countries, as

it failed to bring any significant increase in their export earnings. The philosophy of

GATT based on the reduction of custom duties on the reciprocal and multilateral basis

could not work well, with the result that the export capacity of the developing countries

did not improve. Even the composition of GATT could not be universal as two big

communist countries were left out. Moreover, GATT was dominated by the rich countries

and as such poor countries could not get the assistance and facilities for the export

promotion. Being disgusted with the philosophy and working of GATT, the third world

leaders demanded the reorientation of the trade relations between developing and

developed countries. Such a demand was not without justification as the working of

GATT proved highly biased in favour of rich nations resulting in the greater disparity

between the “haves” and “have-nots”.

As a consequence the agreement at the conclusion of the Uruguay Round led to the

setting up of the institution of World Trade Organization. The agreement to establish

WTO was signed by 104 countries. This organization came into existence on 1st January,

1995 and replaced the GATT. India has become one of its founder members by ratifying

the WTO agreement on 30th December, 1994. This body will also have the rights to

adjudicate upon the disputes involving the member countries. The Uruguay Round has

thus forged a multilateral constraint upon any unilateral or bilateral action that the

countries like the United States can take under trade laws.WTO has significantly

influenced the liberalization and globalization process in most of the developing

countries including India. WTO provides for reduction in tariffs and trade restrictions in

phased manner over a period of time. It lays down that this task be accomplished in

different rounds of trade negotiations to be held from time to time. All the members of

WTO have to adopt laws and policies in order to comply with the WTO rules.

28.2 Salient features of WTO:

Agreement on agriculture

Agreement on manufactured goods

Multi-fiber arrangement

Agreement on trade related investment measures

Agreement on trade related intellectual property rights

Agreement on services

Disputes settlement body

28.2.1. Agreement on agriculture

This provides a frame work for the long term reform of agricultural trade and domestic

policies over the years to come. It provides for commitments in the area of market access,

domestic support and export competition

28.2.2. Agreement on manufactured goods

With respect to manufactured goods other than textiles, the developed countries agreed to

reduce their tariffs by 40% to an average of 3.8% from the pre Uruguay Round d level of

6.3%

28.2.3. Multi-fiber arrangement

This provides for phasing out the import quotas on textiles and clothing in force under the

multi-fiber arrangement since 1974 over a span of 10 years.

28.2.4. Agreement on trade related investment measures

The agreement calls for introducing national treatment for foreign investments and

removal of quantitative restrictions.

28.2.5. Agreement on trade related intellectual property rights

The agreement stipulates the minimum standards of protection to be adopted by the

parties in respect of; copy right and related rights; trade marks; geographical indications;

industrial designs; patents; protection of trade secrets and the enforcement of these.

28.2.6. Agreement on services

For the first time trade in services like banking, insurance, travel, mobility of labour,

etc... has been brought within the ambit of negotiations.

28.2.7. Disputes settlement body

Unlike the GATT it has now been made mandatory to settle a dispute within 18 months.

The findings of the disputes settlement panels will be final and binding on all parties

concerned.

28.3 Evaluation on WTO by UNDP:

India became a founder member of WTO by ratifying the agreement on 30th Dec 1994. no

other issue in recent times has generated so much effects – benefits and losses of the new

international economic order on world economy in general and developing countries in

particular.

In this connection, an evaluation by the UNDP human development report stated thus;

Poor countries often lose out because the rules of the game are biased against them

particularly those relating to international trade. The Uruguay Round hardly changed the

picture. Developing countries, with three quarters of world’s people, will get only a

quarter to a third of the income gains generated and most of that will go to a few

powerful exporters in Asia and Latin America.

The WTO led trading system has not delivered on the promise of the trade creation and

income generation for developing countries and they continue to face traditional as well

as new and complex barriers to their export of commodities, goods and services. The

developing countries have to ensure that the follow –up negotiations on the WTO

agreement result in improved trade access to them and the developed countries are

compelled to do away with their protectionist measures, both open and veiled.

28.3.1 Geneva Talks-1998:

In the Geneva Conference held in May 1998, the WTO did not take any bold steps to

correct some of the anomalies in the multilateral trading system adversely affecting the

interest of poor countries. India, along with other developing countries, rightly

emphasized the need for amendments in the Uruguay Round agreements in the service

sector, agriculture and trade related intellectual property rights. The WTO declaration had

seemingly responded to the Indian plea by expressing its concern over the

marginalization of the least developed countries and pointing out that the benefits of the

multilateral trading system must flow from the developed to the developing world. But

while pledging to market access conditions for products exported by the poor countries,

the WTO did not announce any immediate action plan. It preferred to levee the issue to

the “good sense “of the developed countries.

With the gradual elimination of tariffs and proposal to consider duty and quota – free

access to products from least developed countries, developed countries are likely seeks

out new and innovative means of denying access to their markets. Non-tariffs barriers to

trade in the form of labor standards child labor issues like human rights and government

etc., could be foremost among them. While these might all be desirable objectives

themselves, developing countries must project their concerns and difficulties effectively

to the developed world. Trade unions and NGO’s should be used to oppose the various

non trade issues which may be brought under the WTO fold and their should be greater

coordination between trade policy and foreign policy.

28.3.2 Seattle Talks-1999:

The collapse of the WTO talks in Seattle in Dec 1999 was primarily due to the attempts

to linked trade with non trade issues like labor and environment. These issues should be

addressed by appropriate international institutions that are more competent and better

equipped than the WTO. The developing countries should be given more time for

transition to a more open economic scenario.

28.3.3 Doha Round Talks – 2001 :

The Doha Round, conceived into 2001, was seen as a means for least developed countries

to trade their way out of their poverty; for years, aid had crippled rather then raised

productive potential of LDC’s.

Trade diplomats and analysts described the finalization of the draft of the ministerial

declaration of trade – related intellectual property rights and public health in the WTO’s

Doha Conference on Nov 14, 2001 as a major breakthrough from the point of view of

developing countries. The overall outcome at Doha was not bad for India but the

government should now be careful about its approach to forthcoming WTO negotiations.

Of course we have to strive very hard to ensure a gainful transition with least pain into

the global economy. The government has also to strive to improve infrastructure and

provide a facilitating environment for including acceleration in trade.

While no consensus could be reached at the Tokyo mini ministerial summit of WTO held

in february 2003 on the crucial new trade negotiations, India fortified its position on

agriculture, TRIP’s and public health Issues.

28.3.4 Cancun Talks-2003:

The talks held at Cancun in Mexico in September 2003 failed and no agreement could be

reached due to the stubborn attitude of the developing countries towards farm subsidies

they give. With the developing countries forced to liberalize trade and open up markets,

this has brought millions of third world farmers to the brink of penury and starvation. The

Hong Kong sixth WTO ministerial held in December 2005 addressed concerns of both

agriculture and industrial sector. According to the declaration, developed countries will

have to eliminate their export subsidies by 2013 while reducing them substantially by

2010.

28.3.5 Post-WTO Regime:

The post-WTO regime is potent with both dangers and opportunities for Indian

properties and commodities. Greater vigilance is now necessary on the part of the

developing countries to ensure that the foreign companies are not able acquire rights on

traditional items. With the collapse of talks at Geneva in July 2006 the target of

December 2006 for completion of Doha Round looks more difficult. The differences

persisted regarding the reduction of subsidy to agricultural products by the rich countries

and tariff on industrial products by the developing countries. The major trading powers

failed to resolved differences on reforming world farm trade which lies at the heart of the

Doha Round. Developed countries will have to address trade-distorting subsidies in

agriculture to complete Doha Round by December 2006.

28.4 Summary

At the outset as a consequence of the agreement at the conclusion of the Uruguay Round

led to the setting up of the institution of World Trade Organization. The agreement to

establish WTO was signed by 104 countries. This organization came into existence on 1st

January, 1995 and replaced the GATT. India has become one of its founder members by

ratifying the WTO agreement on 30th December, 1994. This body will also have the rights

to adjudicate upon the disputes involving the member countries. The Uruguay Round has

thus forged a multilateral constraint upon any unilateral or bilateral action that the

countries like the United States can take under trade laws. WTO has significantly

influenced the liberalization and globalization process in most of the developing

countries WTO including India. WTO provides for reduction in tariffs and trade

restrictions in phased manner over a period of time. It lays down that this task be

accomplished in different rounds of trade negotiations to be held from time to time. All

the members of WTO have to adopt laws and policies in order to comply with the WTO

rules.

28.5 Check your Progress

State whether the following are True or False:

1. WTO replaced by the GATT2. Multi Fiber arrangement is a salient feature of WTO3. Geneva Talks held in 19994. Doha conference held in 2001

28.6 Key Concepts

World Trade Organization : Under developed countries faced the problem of

unfavourable balance of trade for a long time. This problem was sought to be solved

trough GATT, now replaced by World Trade Organization (WTO).

Multi Fiber agreement : This provides for phasing out the import quotas on textiles and

clothing in force under the multi-fiber arrangement since 1974 over a span of 10 years.

TRIM’s : The agreement calls for introducing national treatment for foreign investments

and removal of quantitative restrictions.

TRIP’s : The agreement stipulates the minimum standards of protection to be adopted

by the parties in respect of; copy right and related rights; trade marks etc., and the

enforcement of these.

Agreement on Services: For the first time trade in services like banking, insurance,

travel, mobility of labour, etc... has been brought within the ambit of negotiations.

28.7 Self-Assessment Questions

Long Answer Questions

1. Examine critically the working of WTO.

2. Discuss the role of WTO in economic development

3 What are salient features of WTO

Short Answer Questions

4 Write Note on Agreement on Agriculture

5. What is meant by Multi Fiber Arrangement

6 Distinguish between TRIP’s and TRIM’s

7 Explain the Essense of Cancun Talks

28.8 Answers to check your progress

1. False 2. True 3. False 4. True

28.9 Suggested Readings

1. Todaro,M.P., Economic Development in the Third World,1978

2. Meier,G.M.(ed), Leading Issues in Economic Development,1984

3. Jhingin M.L. The Economics of Development and Planning,2002

4. Taneja,Myer Economics of Development and Planning,2007