The World Trade Organization (WTO) is an intergovernmental organization that is concerned with the regulation of international trade between nations. The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. It is the largest international economic organization in the world.
The Marrakesh Agreement, manifested by the Marrakesh Declaration, was an agreement signed in Marrakesh, Morocco, by 123 nations on 15 April 1994, marking the culmination of the 8-year-long Uruguay Round and establishing the World Trade Organization, which officially came into being on 1 January 1995.
The agreement developed out of the General Agreement on Tariffs and Trade (GATT), supplemented by a number of other agreements on issues including:
- Trade in services,
- Sanitary and phytosanitary measures,
- Trade-related aspects of intellectual property
- Technical barriers to trade.
It also established a new, more efficient and legally binding means of dispute resolution. The various agreements which make up the Marrakesh Agreement combine as an indivisible whole; no entity can be party to any one agreement without being party to them all. The WTO deals with regulation of trade in goods, services and intellectual property between participating countries by providing a framework for negotiating trade agreements and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements, which are signed by representatives and ratified by their Parliaments.
The World Trade Organization (WTO)
- Prohibits discrimination between trading partners,
- But WTO provides exceptions for environmental protection, national security, and other important goals.
- Trade-related disputes are resolved by independent judges at the WTO through a dispute resolution process.
India has been member of GATT since 1948; hence it was party to Uruguay Round and a founding member of WTO. China joined WTO only in 2001 and Russia had to wait till 2012.
GATT (General Agreement on Tariffs and Trade):
- GATT trade rounds concentrated on further reducing tariffs.
- The Anti-dumping Agreement under Keneddy round
- Tackle trade barriers under Tokyo round that do not take the form of tariffs, and to improve the system.
- Adopting a series of agreements on non-tariff barriers, which in some cases interpreted existing GATT rules, and in others broke entirely new ground. They were often informally called "codes".
Several of these codes were amended in the Uruguay Round and turned into multilateral commitments accepted by all WTO members. Despite attempts in the mid-1950s and 1960s to establish some form of institutional mechanism for international trade, the GATT continued to operate for almost half a century as a semi-institutionalized multilateral treaty regime on a provisional basis.
GATT didn’t cover
- Trade in services,
- Intellectual Property Rights etc.
GATT’s main focus was on:
- Textiles and
- Agriculture sector
A strong Dispute Resolution Mechanism was absent. By developing countries it was seen as a body meant for promoting interests of wests. This was because Geneva Treaty of 1946, where GATT was signed had no representation from newly independent states and socialist states.
Uruguay Round: 1986–1994
Members concluded that the GATT system was straining to adapt to a new globalizing world economy. In response to the problems identified in the 1982 Ministerial Declaration, the Eighth GATT round—known as the Uruguay Round—was launched in September 1986, in Punta del Este, Uruguay. It was the biggest negotiating mandate on trade ever agreed: the talks aimed to extend the trading system into several new areas, notably trade in services and intellectual property, and to reform trade in the sensitive sectors of agriculture and textiles. The Final Act concluding the Uruguay Round and officially establishing the WTO regime was signed 15 April 1994, during the ministerial meeting at Marrakesh, Morocco, and hence is known as the Marrakesh Agreement. GATT 1994 is not, however, the only legally binding agreement included via the Final Act at Marrakesh; a long list of about 60 agreements, annexes, decisions and understandings was adopted.
The agreements fall into six main parts:
- The Agreement Establishing the WTO
- The Multilateral Agreements on Trade in Goods
- The General Agreement on Trade in Services
- The Agreement on Trade-Related Aspects of Intellectual Property Rights
- Dispute settlement
- Reviews of governments' trade policies
In terms of the WTO's principle relating to tariff "ceiling-binding", the Uruguay Round has been successful in increasing binding commitments by both developed and developing countries, as may be seen in the percentages of tariffs bound before and after the 1986–1994 talks. Agreements to liberalize trade in industrial products include reductions in tariffs and removal of quantitative restrictions.
- The advanced countries agreed to reduce tariffs on industrial imports amounting to 64 percent of the total value of their imports of such products; 18 percent of their industrial imports were already duty-free under commitments made prior to the Round.
- The developing countries agreed to lower their tariffs on about one-third of their industrial imports, and the participating transition countries on three-quarters of theirs.
- Tariff reductions are to be completed by the year 2000 except for certain sensitive sectors such as textiles, for which the reductions must be completed by 2005.
Further, outcome of this round mandated reduction of import duty on Tropical Products, which are mainly exported by developing and least developed countries.
The highest decision-making body of the WTO, the Ministerial Conference, usually meets every two years. It brings together all members of the WTO, all of which are countries or customs unions. The Ministerial Conference can take decisions on all matters under any of the multilateral trade agreements.
- Some meetings, such as the inaugural ministerial conference in Singapore and the Cancun conference in 2003 involved arguments between developed and developing economies referred to as the "Singapore issues" such as agricultural subsidies.
- The fourth ministerial conference in Doha in 2001 approved China's entry to the WTO and launched the Doha Development Round which was supplemented by the sixth WTO ministerial conference (in Hong Kong) which agreed to phase out agricultural export subsidies and to adopt the European Union's Everything but Arms initiative to phase out tariffs for goods from the Least Developed Countries.
- The Twelfth Ministerial Conference (MC12) is set to be held in Astana, Kazakhstan, in 2020. The decision was taken by consensus at the General Council meeting on 26 July 2018 and marks the first time a Ministerial Conference is to be organized in Central Asia.
Doha Round (Doha Agenda-2001)
The WTO launched the current round of negotiations, the Doha Development Round, at the fourth ministerial conference in Doha, Qatar in November 2001. This was to be an ambitious effort to make globalization more inclusive and help the world's poor, particularly by slashing barriers and subsidies in farming. The initial agenda comprised both further trade liberalization and new rule-making, underpinned by commitments to strengthen substantial assistance to developing countries. Progress stalled over differences between developed nations and the major developing countries on issues such as industrial tariffs and non-tariff barriers to trade particularly against and between the EU and the US over their maintenance of agricultural subsidies—seen to operate effectively as trade barriers.
- It oversees the implementation, administration and operation of the covered agreements.
- It provides a forum for negotiations and for settling disputes.
- It is WTO's duty to review and propagate the national trade policies, and to ensure the coherence and transparency of trade policies through surveillance in global economic policy-making.
- Another priority of the WTO is the assistance of developing, least-developed and low-income countries in transition to adjust to WTO rules and disciplines through technical cooperation and training.
The WTO shall facilitate the implementation, administration and operation and further the objectives of this Agreement and of the Multilateral Trade Agreements, and shall also provide the framework for the implementation, administration and operation of the multilateral Trade Agreements. The WTO shall administer the Understanding on Rules and Procedures Governing the Settlement of Disputes. The WTO shall administer Trade Policy Review Mechanism. With a view to achieving greater coherence in global economic policy making, the WTO shall cooperate, as appropriate, with the international Monetary Fund (IMF) and with the International Bank for Reconstruction and Development (IBRD) and its affiliated agencies.
As the trade volume increases, issues such as
- Trade barriers,
- Violation of intellectual property arise due to the differences in the trading rules of every nation.
The World Trade Organization serves as the mediator between the nations when such problems arise.
The WTO is also a centre of economic research and analysis:
- Regular assessments of the global trade picture in its annual publications
- Research reports on specific topics are produced by the organization.
Principles of the trading system:
It has two major components:
- The Most Favoured Nation (MFN) rule
The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members, i.e. a WTO member has to grant the most favourable conditions under which it allows trade in a certain product type to all other WTO members. "Grant someone a special favour and you have to do the same for all other WTO members."
- The National Treatment Policy.
National treatment means that imported goods should be treated no less favourably than domestically produced goods (at least after the foreign goods have entered the market) and was introduced to tackle non-tariff barriers to trade (e.g. technical standards, security standards et al. discriminating against imported goods).
It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule, and a desire to obtain better access to foreign markets. A related point is that for a nation to negotiate, it is necessary that the gain from doing so be greater than the gain available from unilateral liberalization; reciprocal concessions intend to ensure that such gains will materialise.
|Binding and enforceable commitments
The tariff commitments made by WTO members in a multilateral trade negotiation and on accession are enumerated in a schedule (list) of concessions. These schedules establish "ceiling bindings": a country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade. If satisfaction is not obtained, the complaining country may invoke the WTO dispute settlement procedures.
The WTO members are required to publish their trade regulations, to maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO. These internal transparency requirements are supplemented and facilitated by periodic country-specific reports (trade policy reviews) through the Trade Policy Review Mechanism (TPRM).
The WTO system tries also to
- improve predictability and stability,
- discouraging the use of quotas
- other measures used to set limits on quantities of imports.
In specific circumstances, governments are able to restrict trade. The WTO's agreements permit members to take measures to protect not only the environment but also public health, animal health and plant health.
There are three types of provision in this direction:
- Articles allowing for the use of trade measures to attain non-economic objectives;
- Articles aimed at ensuring "fair competition"; members must not use environmental protection measures as a means of disguising protectionist policies.
- Provisions permitting intervention in trade for economic reasons.
Major agreements of WTO:
|Agreement on subsidies and countervailing measures – SCM
||The WTO SCM Agreement contains a definition of the term “subsidy”. The definition contains three basic elements:
- A Financial Contribution
- By a government or any public body within the territory of a Member
- Which confers a benefit.
All three of these elements must be satisfied in order for a subsidy to exist.
In order for a financial contribution to be a subsidy, it must be made by or at the direction of a government or any public body within the territory of a Member. Thus, the SCM Agreement applies not only to measures of national governments, but also to measures of sub-national governments and of such public bodies as state-owned companies.
Further, Such Financial contribution must also confer benefit to the industry. Now, in cash grants, benefit will be straightforward to identify, but in cases where there is loan or capital infusion from government/ Public body, it will not be that easy. Such issues are resolved by appellate body of WTO.
Only “specific” subsidies are subject to the SCM Agreement disciplines. There are four types of “specificity” within the meaning of the SCM Agreement:
A government targets a particular company or companies for subsidization;
A government targets a particular sector or sectors for subsidization.
- Regional specificity
A government target producers in specified parts of its territory for subsidization.
- Prohibited subsidies.
A government targets export goods or goods using domestic inputs for subsidization.
Hence there are two types of prohibited subsidies –
- Subsidies contingent upon export performance.
- Subsidies contingent upon use of domestic content over imported goods.
Further, there is separate category of ‘Actionable subsidies’. These are not prohibited but countries can take ‘Countervailing measures’ against these subsidies or they can be challenged in ‘dispute resolution body’ of WTO.
For a subsidy to be actionable, 3 conditions should be present:
- Injury to domestic industry due to subsidized imports of other country.
- There is serious prejudice: Serious prejudice usually arises as a result of adverse effects (e.g., export displacement) in the market of the subsidizing Member or in a third country market. For e.g. If India starts subsidizing its textile sector heavily, then China can claim that this subsidy is causing serious prejudice to its textile industry.
- Nullification or impairment of benefits accruing under the GATT 1994. It means when benefit to be accrued from reduction of tariffs (under GATT) are nullified by increase in subsidies.
Against such subsidies members can take Countervailing Measures, such as imposing countervailing duties or antidumping duty. These can only be done in a transparent manner and a sunset period should be specified. Recently, India imposed Anti- Dumping duty on imports of stainless steel from China.
It is imposed on imported goods to counterbalance subsidy provided by the exporter country.
At times countries resort to subsidize production or exports so heavily that exporters are able to sell goods below domestic price or even cost of production in foreign markets. It is aimed at wiping out target country’s industry. Anti-Dumping Duty is aimed at counterbalancing such subsidization.
|General Agreement on Trade in Services (GATS)
||The GATS was inspired by essentially the same objectives as its counterpart in merchandise trade, GATT:
- creating a credible and reliable system of international trade rules;
- ensuring fair and equitable treatment of all participants (principle of non-discrimination);
- stimulating economic activity through guaranteed policy bindings; and
- promoting trade and development through progressive liberalization.
While services currently account for over 60 percent of global production and employment, they represent no more than 20 per cent of total trade (BOP basis). Many services, which have long been considered genuine domestic activities, have increasingly become internationally mobile. This trend is likely to continue, owing to
- the introduction of new transmission technologies (e.g. electronic banking, tele-health or tele-education services),
- the opening up in many countries of long-entrenched monopolies (e.g. voice telephony and postal services),
- regulatory reforms in hitherto tightly regulated sectors such as transport.
Combined with changing consumer preferences, such technical and regulatory innovations have enhanced the “tradability” of services and, thus, created a need for multilateral disciplines.
Services negotiations in the WTO follow the so-called positive list approach, whereby members’ schedules of specific commitments list all of the services sectors and sub-sectors where they undertake to bind the market opening and the granting of national treatment to foreign service suppliers, apart the listed barriers that remain. Sectors and sub-sectors not included in the schedule are exempt from any obligations as regards market access and national treatment.
West is pushing hard to move from positive list approach to negative list approach. In negative list approach, services where GATS is not applicable will have to be negotiated, agreed upon and specified. India is against this concept as it will throw open almost whole Indian services sector to western multinational giants.
Negotiations is services under GATS are classified in 4 modes, interests of different countries depend upon this classification:
- Mode 1
It includes cross border supply of services without movement of natural persons. For eg. Business Process Outsourcing, KPO or LPO services. Here, it’s in India’s interest to push for liberalization given its large human resource pool and competitive IT industry.
- Mode 2
This mode covers supply of a service of one country to the service consumer of any other country. E.g. telecommunication
- Mode 3
Commercial presence – which covers services provided by a service supplier of one country in the territory of any other country. This opens door of relevant sector in one country to investments from another country. Accordingly, it is in west’s interest to push for liberalization here. There has been sustained pressure to open up higher education sector, insurance sector, Medical sector etc through this mode.
- Mode 4
Presence of natural persons – which covers services provided by a service supplier of one country through the presence of natural persons in the territory of any other country. E.g. Infosys or TCS sending its engineers for onsite work in US/Europe or Australia. Here again it’s in India’s interest to push for liberalization. In 2012, India dragged the US to the World Trade Organization’s (WTO’s) dispute settlement body (DSB) over an increase in the professional visa fee (H1B/L1).
|The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is an international legal agreement between all the member nations of the World Trade Organization (WTO). It sets down minimum standards for the regulation by national governments of many forms of intellectual property (IP) as applied to nationals of other WTO member nations. TRIPS was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) between 1989 and 1990 and is administered by the WTO.
It remains an issue between Developed and developing countries. TRIPS was fine tuned in favour of developing countries in 2003, as part of Doha development agenda, when all members agreed to compulsory licensing in certain cases. However, now U.S. and Europe remain unhappy about current strict terms of patent allowed by TRIPS
|The Agreement on Trade-Related Investment Measures (TRIMs)
The Agreement on Trade-Related Investment Measures (TRIMs) are rules that are applicable to the domestic regulations a country applies to foreign investors, often as part of an industrial policy. The agreement, concluded in 1994, was negotiated under the WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), and came into force in 1995. The agreement was agreed upon by all members of the World Trade Organization. Trade-Related Investment Measures is one of the four principal legal agreements of the WTO trade treaty.
TRIMs are rules that restrict preference of domestic firms and thereby enable international firms to operate more easily within foreign markets. Policies such as local content requirements and trade balancing rules that have traditionally been used to both promote the interests of domestic industries and combat restrictive business practices are now banned. Recently India was dragged to WTO by U.S. over former’s specification of Domestic Content Requirement in relation to procurement of Solar Energy cells and equipments.
AoA (Agreement on Agriculture):
By the 1980s, government payments to agricultural producers in industrialised countries had caused large crop surpluses, which were unloaded on the world market by means of export subsidies, pushing food prices down. The fiscal burden of protective measures increased, due both to lower receipts from import duties and higher domestic expenditure. In the meantime, the global economy had entered a cycle of recession, and the perception that opening up markets could improve economic conditions led to calls for a new round of multilateral trade negotiations. The round would open up markets in services and high-technology goods, ultimately generating much needed efficiency gains. In order to engage developing countries, many of which were "demandeurs" of new international disciplines, agriculture, textiles, and clothing were added to the grand bargain.
In leading up to the 1986 GATT Ministerial Conference in Punta del Este, Uruguay, farm lobbies in developed countries strongly resisted compromises on agriculture. In this context, the idea of exempting production and "trade-neutral" subsidies from WTO commitments was first proposed by the United States in 1987, and echoed soon after by the EU. By guaranteeing farmers continued support, it also neutralised opposition. In exchange for bringing agriculture within the disciplines of the WTO and committing to future reduction of trade-distorting subsidies, developed countries would be allowed to retain subsidies that cause "not more than minimal trade distortion" in order to deliver various public policy objectives.
The Agreement on Agriculture (AoA) constitutes of three pillars:
- Domestic support,
- Market access, and
- Export subsidies.
||The first pillar of the Agreement on Agriculture is "Domestic Support". AoA divides domestic support into two categories:
The WTO Agreement on Agriculture negotiated in the Uruguay Round (1986–1994) includes the classification of subsidies by "boxes" depending on consequences of production and trade:
- non-trade-distorting (or minimally trade-distorting).
- Green Box (minimal distortion):
Subsidies which are no or least market distorting includes measures decoupled from output such as:
- income-support payments (decoupled income support),
- safety – net programs,
- payments under environmental programs,
- agricultural research and-development subsidies.
Such as Income Support which is not product specific. Like in India farmer is supported for specific products and separate support prices are there for rice, wheat etc. On the other hand income support is uniformly available to farmers and crop doesn’t matter.
US has exploited this opportunity to fullest by decoupling subsidies from outputs and as of now green box subsidies are about 90% of its total subsidies. It was easy for USA because it doesn’t have concern for food security. Further, it has prosperous agro economy, and farmers can better respond to markets and shift to other crops. But in India, domestic support regime provides livelihood guarantee to farmers and also ensures food security and sufficiency. For this MSP regime tries to promote production of particular crop in demand. And this makes decoupling Support with output very complicated.
USA was also in position to subsidies R&D expenditure in agriculture as almost all the farming in US is capitalist and commercial. Big agriculturists spend substantial amount on technology upgradations and R&D. But in India about 80% of farming is subsistence and hence, India & other developing countries can use this opportunity.
- Blue Box (production-limiting programmes that still distort trade):
Only ‘Production limiting Subsidies’ under this are allowed. They cover payments based on acreage, yield, or number of livestock in a base year. ‘Targets price’ are allowed to be fixed by government and if ‘market prices’ are lower, then farmer will be compensated with difference between target prices and market prices in cash. This cash shall not be invested by farmer in expansion of production. Loophole here is that there no limit on target prices that can be set and those are often set far above market prices deliberately. USA currently isn’t using this method, instead here EU is active.
- Amber Box (most directly linked to production levels):
Those subsidies which are trade distorting and need to be curbed. The Amber Box contains category of domestic support that is scheduled for reduction based on a formula called the “Aggregate Measure of Support” (AMS). The AMS is the amount of money spent by governments on agricultural production, except for those contained in the Blue Box, Green Box and ‘de minimis’.
It required member countries to report their total AMS for the period between 1986 and 1988, bind it, and reduce it according to an agreed upon schedule. Developed countries agreed to reduce these figures by 20% over six years starting in 1995. Developing countries agreed to make 13% cuts over 10 years. Least – developed countries do not need to make any cuts.
As we can note that Subsidies were bind to levels of 1986-1988, there was inequality at very beginning of the agreement. At that time subsidies which latter came under ‘Amber Box’ were historically high in western countries. In developing countries, including India these subsidies were very limited. It is only now under pressure of Inflation in prices of agricultural Inputs, and wide differences between market prices and Minimum support Price, subsidies have grown to this level. In effect developed countries are allowed to maintain substantially higher amount of trade distorting subsidies.
Under this provision developed countries are allowed to maintain trade distorting subsidies or ‘Amber box’ subsidies to level of 5% of total value of agricultural output. For developing countries this figure was 10%.
So far India’s subsidies are below this limit, but it is growing consistently. This is because MSP are always revised upward whereas Market Prices have fluctuating trends. In recent times when crash in international market prices of many crops is seen, government doesn’t have much option to reduce MSP drastically. By this analogy India’s amber box subsidies are likely to cross 10% level allowed by de Minimis provision.
Bali Summit (2013), Trade facilitation and Peace Clause:
9th WTO ministerial conference held at Bali, Indonesia. “Bali Package” is the collection of three prime outcomes of this summit.
- Trade facilitation agreement:
To cut down the red tape in customs clearance
- LDC exports
Exporters from Least developing countries, will get Duty free, quota free (DFQF) access to markets in foreign countries.
- Food stockholding
This lead to peace clause, explained below
As per the original Agreement on agriculture (AoA), the developed and developing countries have to keep their Amber box subsidies within De-minimus level i.e. 5% and 10% of their agriculture production in 1986-88 respectively. India opposed this base year and limits, because it’d make impossible to implement the food security programs for the poor and MSP for the farmers. Therefore, as a measure of temporary relief, Bali summit enacted a “peace clause” for the AoA.
Salient features of Peace Clause
No member, can drag any developing country to Dispute settlement mechanism of WTO for violation of De-minimus limits in AoA. Provided that the said developing country:
- is paying subsidies for staple foodcrops
- For public stockholding program
- For food security purpose.
- is providing annual information of its food security Program to WTO
- Permanent solution will be taken no later than 11th ministerial conference i.e. at December 2017.
Market access refers to the reduction of tariff (or non-tariff) barriers to trade by WTO members. The 1995 Agreement on Agriculture consists of tariff reductions of:
Least developed countries (LDCs) were exempt from tariff reductions, but they either had to convert non-tariff barriers to tariffs—a process called tariffication—or "bind" their tariffs, creating a ceiling that could not be increased in future.
- 36% average reduction - developed countries - with a minimum of 15% per-tariff line reduction in next six years.
- 24% average reduction - developing countries - with a minimum of 10% per-tariff line reduction in next ten years.
Export subsidies are the third pillar. The 1995 Agreement on Agriculture required developed countries to reduce export subsidies by at least 36% (by value) or by 21% (by volume) over six years. For developing countries, the agreement required cuts were 14% (by volume) and 24% (by value) over ten years.
These can be in form of subsidy on inputs of agriculture, making export cheaper or can be other incentives for exports such as import duty remission etc. These can result in dumping of highly subsidized (and cheap) products in other country. This can damage domestic agriculture sector of other country.
These subsidies are also aligned to 1986-1990 levels, when export subsidies by developed countries was substantially higher and Developing countries almost had no export subsidies that time.
But USA is dodging this provision by its Export credit guarantee program. In this, USA gov. gives subsidized credit to purchaser of US agricultural products, which are to be paid back in long periods. This is generally done for Food Aid programs, such as (Public Law-480) under which food aid is send massively to under developed countries. India also received this Aid in 1960’s. But this is only at concessional rates and credit options. But this results in perpetual dependence on foreign grain in recipient countries and destroys their domestic agriculture. So this is equally trade distorting subsidy, which is not currently under ambit of WTO’s AOA.
Special Safeguard Mechanism
A Special Safeguard Mechanism (SSM) would allow developing countries to impose additional (temporary) safeguard duties in the event of an abnormal surge in imports or the entry of unusually cheap imports. Debates have arisen around this question, some negotiating parties claiming that SSM could be repeatedly and excessively invoked, distorting trade. In turn, the G33 bloc of developing countries, a major SSM proponent, has argued that breaches of bound tariffs should not be ruled out if the SSM is to be an effective remedy. SSM is quite important in a scenario in which west has significant powers to subsidize their production and in turn, exports.
At the 2005 WTO Ministerial Conference in Hong Kong, members agreed to allow developing countries to “designate an appropriate number of tariff lines as Special Products” (SPs) based on “food security, livelihood security and rural development”
Buenos Aires (The 11th ministerial conference (MC11) of the WTO):
Buenos Aires MC ended without any outcome. After the US blocked a permanent solution on government stockholding for food security purposes, India toughened its stand on new issues including e-commerce and investment facilitation. Member states did agree to secure a deal on elimination of fisheries subsidies by the next ministerial in December 2019. Reluctance on the part of China and India to make immediate commitments thwarted a deal on fisheries at the Buenos Aires meet.
As the draft lacked emphasis on issues close to India’s concern such as multilateralism, Doha Development Agenda, special and differential treatment of developing countries, India refused to budge and WTO failed to deliver on its promise of a permanent solution in this Buenos Aires. Developing countries also thwart moves by developed countries to introduce new issues into the WTO agenda such as e-commerce, investment facilitation, MSMEs (micro, small and medium enterprises) and gender equality.
Multifibre Arrangement and Agreement on Textiles and Clothing
The MFA was introduced in 1974 as a short-term measure intended to allow developed countries to adjust to imports from the developing world. Developing countries and countries without a welfare state have an absolute advantage in textile production because it is labour-intensive and they have low labour costs. The Arrangement was not negative for all developing countries. For example, the European Union (EU) imposed no restrictions or duties on imports from the emerging countries, such as Bangladesh, leading to a massive expansion of the industry there.
It was decided to bring the textile trade under the jurisdiction of the World Trade Organization. The Agreement on Textiles and Clothing provided for the gradual dismantling of the quotas that existed under the MFA. This process was completed on 1 January 2005. However, large tariffs remain in place on many textile products.
Sanitary and Phyto- Sanitary Measures
This agreement was one of the results of Uruguay Round of negotiation entered into force with the establishment of the World Trade Organization on 1 January 1995. The Agreement sets out the basic rules for food safety and animal and plant health standards. It allows countries to set their own standards. But it also says regulations must be based on science. They should be applied only to the extent necessary to protect human, animal or plant life or health. And they should not arbitrarily or unjustifiably discriminate between countries where identical or similar conditions prevail.
Main Ministerial Meets:
- Singapore ministerial meet and ‘Singapore issues’ (1996)
The ‘Singapore issues’ term refers to areas of:
These four issues have collectively come to be known as the Singapore issues in the context of the WTO, because it was at the first ministerial conference of the WTO in Singapore in 1996 that they were first brought up as possible areas on which the multilateral body could initiate negotiations.
- trade and investment;
- trade and competition policy;
- trade facilitation;
- transparency in government procurement,
INDIA's stand in WTO:
On issues like investment and competition policy, India feels that having a multilateral agreement would be a serious impingement on the sovereign rights of countries. To an extent, of course, this is inherent in any multilateral treaty, but investment is seen as an area in which ceding sovereign rights would leave governments, particularly developing country governments, with too little room for maneouver in directing investments into areas of national priority.
These are concerns that many other developing countries also share. In addition, on the specific issue of competition policy as applicable to “hardcore cartels,” India has pointed out that there is no clarity on whether these would include export cartels. The Organisation of Petroleum Exporting Countries (OPEC) is perhaps the best-known example of an export cartel that rigs prices by fixing production ceilings. On the issue of transparency in government procurement, the Indian position is that while the principle is entirely acceptable, there cannot be a universal determination of what constitutes transparent procedures. On trade facilitation, India has argued that once again while the idea is unexceptionable, developing countries may not have the resources — by way of technology, or otherwise — to bring their procedures in line with those in the developed world over the short to medium term.
- Doha Ministerial meet and ‘Doha Development Agenda’ (2001)
The Doha Round began with a ministerial-level meeting in Doha, Qatar in 2001. The aim was to put less developed countries' priorities at heart. The needs of the developing countries were the core reasons for the meeting. The major factors discussed include:
- trade facilitation,
- rules of origin
- dispute settlement.
Special and differential treatment for the developing countries were also discussed as a major concern. Progress in negotiations stalled after the breakdown of the July 2008 negotiations. The most significant differences are between developed nations led by the European Union (EU), the United States (US), Canada, and Japan and the major developing countries led and represented mainly by India, Brazil, China, and South Africa. There is also considerable contention against and between the EU and the US over their maintenance of agricultural subsidies—seen to operate effectively as trade barriers. Since the breakdown of negotiations in 2008, there have been repeated attempts to revive the talks, so far without success.
Issues of Doha meet:
Agriculture is important for developing countries, because around 75% of the population in developing countries live in rural areas, and the vast majority are dependent on agriculture for their livelihoods. The first proposal in Qatar, in 2001, called for the end agreement to commit to "substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support."
The United States is insisting that the EU and the developing countries agree to make more substantial reductions in tariffs and to limit the number of import-sensitive and special products that would be exempt from cuts. Import-sensitive products are of most concern to developed countries like the European Union, while developing countries are concerned with special products – those exempt from both tariff cuts and subsidy reductions because of development, food security, or livelihood considerations. Brazil has emphasized reductions in trade-distorting domestic subsidies, especially by the United States, while India has insisted on a large number of special products that would not be exposed to wider market opening.
- Access to patented medicines
A major topic at the Doha ministerial regarded the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The issue involves the balance of interests between the pharmaceutical companies in developed countries that held patents on medicines and the public health needs in developing countries. Another issue concerns the protection of traditional medicinal knowledge and practices. Before the Doha meeting, the United States claimed that the current language in TRIPS was flexible enough to address public health emergencies, but other countries insisted on new language.
On 30 August 2003, WTO members reached agreement on the TRIPS and medicines issue. Voting in the General Council, member governments approved a decision that offered an interim waiver under the TRIPS Agreement allowing a member country to export pharmaceutical products made under compulsory licenses to least-developed and certain other members.
- Special and differential treatment
In the Doha Ministerial Declaration, the trade ministers reaffirmed special and differential (S&D) treatment for developing countries and agreed that all S&D treatment provisions "...be reviewed with a view to strengthening them and making them more precise, effective and operational." Developing countries wanted to negotiate on changes to S&D provisions, keep proposals together in the Committee on Trade and Development, and set shorter deadlines. Developed countries wanted to study S&D provisions, send some proposals to negotiating groups, and leave deadlines open. At the December 2005 Hong Kong ministerial, members agreed to five S&D provisions for least developed countries (LDCs), including the duty-free and quota-free access.
It is argued that subsidies to agriculture, especially to cotton, unite developing countries in opposition more than SDT provisions and therefore have a greater consensus. Duty-free and quota-free access (DFQFA) currently discussed covers 97% of tariff lines and if the US alone were to implement the initiative, it would potentially increase Least Developed Countries’ (LDCs) exports by 10% (or $1bn). Many major trading powers already provide preferential access to LDCs through initiatives such as the Everything but Arms (EBA) initiative and the African Growth and Opportunity Act.
- Implementation issues
Developing countries claim that they have had problems with the implementation of the agreements reached in the earlier Uruguay Round because of limited capacity or lack of technical assistance. They also claim that they have not realized certain benefits that they expected from the Round, such as increased access for their textiles and apparel in developed-country markets. They seek a clarification of language relating to their interests in existing agreements. At the Doha meeting, the Ministerial Declaration directed a two-path approach for the large number of remaining issues:
- where a specific negotiating mandate is provided, the relevant implementation issues will be addressed under that mandate; and
- the other outstanding implementation issues will be addressed as a matter of priority by the relevant WTO bodies. Outstanding implementation issues are found in the area of market access, investment measures, safeguards, rules of origin, and subsidies and countervailing measures, among others.
- Cancun Ministerial Meet – Abandonment of Singapore issues (2003)
At Fifth WTO Ministerial Conference, the main task was to take stock of progress in negotiations and other work under the Doha Development Agenda. With Doha Development Agenda in place it was expected that some concessions will be made on Singapore issues, but position remained entrenched as they were. The only positive development from the point of view of trade negotiations was the creation and survival of the new developing country negotiating group, the G-20. In particular, subsequent mini-negotiations have seen the growing importance of members of the G-20 like India, Brazil and South Africa.
- Geneva Talks (2004)
Here Singapore issues were dropped from Doha Agenda. Further it was agree to proceed in areas of agriculture, Non- Agricultural market access, Services and Trade facilitation.
- Potsdam (2007)
In June 2007, negotiations within the Doha round broke down at a conference in Potsdam, as a major impasse occurred between the USA, the EU, India and Brazil. The main disagreement was over opening up agricultural and industrial markets in various countries and how to cut rich nation farm subsidies.
- Bali meet (2013)
The Bali Ministerial reached agreement on some of the areas of negotiation:
- Trade facilitation,
- a package for Least Development Countries (LDCs)
With the exception of trade facilitation, the decisions with respect to agriculture and LDCs have not created binding commitments and have merely created the platform for further work and negotiations. The importance of the Bali outcomes is the indication that WTO members are again willing to negotiate. This has breathed new life into the Doha Round, which was essential, as the relevance of the WTO faded in the face of the number of regional agreements being negotiated. The conclusion of the Doha Round and delivering on the Doha Development Agenda remains essential to African economies for their growth, development and global integration ambitions. This is especially true as the global trade landscape becomes dominated by regional trade agreements, particularly the mega regionals (TPP, TTIP and RCEP). These agreements, and in particular the mega regionals, will define the global trade and geopolitical landscape in the coming years. The Bali outcomes may not stem the tide of regional agreements, but by reaffirming the commitment of members to the global trade system, it does create the space for the multilateral system to reaffirm its role and importance in regulating global trade.
A strong multilateral system will ensure that WTO members not party to the mega regionals are not marginalised and isolated in global trade. The approach toward negotiations in the WTO will also need to be considered, with some subsets of the WTO membership pursuing plurilateral agreements like the Trade in Services Agreement. The implications of these remains uncertain and care should be taken that this does not detract from the conclusion of the Doha Round, which remains the ultimate goal. In Bali Trade facilitation was agreed to by all nations and for adjustments/adaptations to limits under Agreement on Agriculture (de minimis provisions); a ‘Peace clause’ was agreed at. Peace clause gave countries 4 years times to adjust to the limit and avoid sanctions.
India – US reached understanding in which time limit of 4 years was removed and in return Trade Facilitation was agreed to by India. Notably, in Deal at Bali, Developed countries were able to woo under developed countries on basis of a ‘Special Package’ for them directed toward Social and physical infrastructure. India as a result was isolated in all this, only South Africa extended some support to India’s stand. Trade Facilitation requires member countries to invest in Infrastructure that facilitates Imports and exports, simplify custom procedures and remove other non-tariff barriers.
‘Trade facilitation deal’ was marketed by developed countries as a progressive and much needed deal for good of all type of countries. It is being said that it will boost up Global GDP by $ 1 Trillion and will add millions of new jobs. This argument has a little or no empirical backing and it is feared that western supplier will invade domestic markets of developing and underdeveloped countries. ‘Trade facilitation’ along with ‘special package’ is like saying that gains of developed countries will be so big, that losses of under-developed countries will be lucratively compensated by them.
- Nairobi Ministerial Meet (2015)
Nairobi meet was a huge disappointment for the developing and under developed world. Here, U.S. trade Representative unabashedly called Doha Development Agenda a dead, outdated and undesirable course. West is desperately trying to set aside development aspect of negotiations, to which it had agreed in Doha. Its focus is now on Trade Facilitation Agreement which was agreed to in Bali meet.
Further, western countries led by USA are trying to introduce new issues (including some Singapore issues) such as:
- Government Procurement,
- Competition policy.
To this India and other developing countries took strong objection. Developing countries led by India, China, South Africa, Indonesia, Ecuador, and Venezuela prepared the ground to ensure that the Doha Round of negotiations are not closed by the two trans-Atlantic trade elephants. They also tabled detailed proposals for a permanent solution for public stockholding programmes for food security and a special safeguard mechanism (SSM) to protect millions of resource-poor and low-income farmers from the import surges from industrialized countries.
Highlights of Nairobi outcomes:
- Developed members have committed to remove export subsidies immediately, except for a handful of agriculture products, and developing countries will do so by 2018. Developing members will keep the flexibility to cover marketing and transport costs for agriculture exports until the end of 2023, and the poorest and food-importing countries would enjoy additional time to cut export subsidies.
- Ministers also adopted a Ministerial Decision on Public Stockholding for Food Security Purposes. The decision commits members to engage constructively in finding a permanent solution to this issue.
- A Ministerial Decision on a Special Safeguard Mechanism (SSM) for Developing Countries recognizes that developing members will have the right to temporarily increase tariffs in face of import surges by using an SSM.
- There were other decisions of particular interests of least developing Countries. One of them is Preferential Rules of Origin. It entails that ‘Made in LDC’ products will get unrestricted access to markets of non-LDCs.
- There was affirmation that Regional Trade Agreements (RTAs) remain complementary to, not a substitute for, the multilateral trading system (WTO).
- Buenos Aires Meet (2017)
India cleared its position that it does not envisage any negotiated outcome at the 11th ministerial conference (MC11) of the World Trade Organization (WTO) that does not include a permanent solution to the issue of public stockholding (PSH) for food security purposes. It also maintained that it would strongly oppose moves by some countries seeking a mandate to discuss investment facilitation. “A successful resolution of public stockholding and food security issue would fulfil our collective commitment to the global community".
Bali did deliver an outcome, albeit significantly less developmental than many would have hoped for. The WTO may have been saved in Bali but it still remains in a critical condition because developed nations not willing to consider issues which matter for the developing world. India has made it clear that it does not want decisions to be taken by a small group of members like in the Nairobi ministerial in 2015 and has sought greater transparency in decision-making. Other developing countries seeking permission to introduce new food security programmes.
Developing countries seeking three things:
- easy workability of the peace clause than mandated,
- inclusion of future food security programmes
- a stronger legal basis.
India's position on new issues that are sought to be introduced into the negotiating agenda of the WTO, such as e-commerce and investment facilitation, would be “extremely divisive". “Shifting the priority from DDA (Doha Development Agenda) issues to non-trade issues like investment facilitation and MSMEs (micro, small and medium enterprises), for which there is no mandate, is difficult to accept,". A group called the Friends of Investment Facilitation (FIFD), comprising 11 countries including China, Pakistan and Brazil, has moved a proposal to appoint a facilitator for discussions on investment facilitation at the WTO. India is proposing that e-commerce discussions should continue at various working groups without any negotiating mandate. But our emphasis on a bottom-up process and not bringing issues directly to WTO general council meeting remains,". India has also modified its stand on automatic extension of the moratorium to abstain from imposing customs duties on electronic transmission by two years at every ministerial conference. It now wants its position on the e-commerce discussions to be endorsed at the MC11 before giving the nod to any such extension.
Future of WTO in the wake of new arrangement like TPP, RCEP:
Association of South East Asian Countries (ASEAN), European Union, North American Union etc. are some associations that provide more liberal and seamless access of member’s markets to fellow member countries. This runs counter to objectives of WTO which seeks to establish a global rule-based system of trading with minimal barriers. However, for so many different countries at different stages of socio-economic development, it is nigh impossible to agree to a common trading regime. Consequently, countries lobby with group of likeminded countries and aim at arriving at a mutually symbiotic agreement which ensures a win-win deal for all participants.
Entering into a free trade agreement or formation of custom union may at times violate ‘Most favourable Nation’ principle of WTO. Hence, most such agreements are entered into keeping in mind exceptions allowed by MFN principle. Agreements while giving preferential treatment to few members must not create new trade barriers for non-members.
Recently, 12 nations led by United States concluded a Trans Pacific Partnership Treaty (TPP). Treaty includes both developed and developing nations (like Vietnam, Peru, and Chile). The contents of this treaty are on the lines of stand taken by U.S. in WTO negotiations. It provides stringent provisions for Labour Standards, Environment Standards and Intellectual Property. Further, it gives power to private corporations, to sue member countries for violation of terms of treaty. US’s biggest trade partner China is not party to treaty. Negotiations led by US are underway for a similar treaty with European countries, dubbed as Trans-Atlantic partnership.
On the other hand India and China are participating in and leading negotiations of Regional Comprehensive Economic partnership (RCEP) Agreement. This agreement is likely to reflect interests of developing countries in its final draft. It is said that when such strong regional agreement (TPP and RCEP) will emerge reflecting different positions taken by different countries, negotiations will start among these two groups and over time they will be subsumed under WTO. However, it is feared that US is likely to use its dollar muscle to lure developing and least developed countries to join these not so fair treaties. It is best said that course of multilateralism is evolving and only time will tell whether WTO will ever be able to provide a common trading platform aimed towards development or not.
Is WTO a beneficial for India or Anathema for India
India is one of the prominent members of WTO and is largely seen as leader of developing and under developed world. At WTO, decisions are taken by consensus. So there is bleak possibility that anything severely unfavourable to India’s interest can be unilaterally imposed. India stands to gain from different issues being negotiated in the forum provided it engages with different interest groups constructively, while safeguarding its developmental concerns.
In absence of such a body we stand to lose a platform through which we can mobilize opinion of likeminded countries against selfish designs of west. Thanks to vast resources of developed countries they can easily win smaller countries to their side. WTO provides a forum for such developing countries to unite and pressurize developed countries to make trade sweeter for poor countries. Accordingly, India remains committed to various developmental issues such as Doha Development Agenda, Special Safeguard Mechanism, Permanent solution of issue of public stock holding etc. Apart from this, Dispute Resolution Mechanism of WTO is highly efficient. Chronological list of cases in WTO can be accessed here. Countries drag their trading partner to this body when action of one country is perceived to be unfair and violative of any WTO agreement, by other country.
Cases of Complaints against India
- Certain Measures Relating to Solar Cells and Solar Modules by USA
- Anti-Dumping Duties on USB Flash Drives from the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu by Chinese Teiepe
- Measures Concerning the Importation of Certain Agricultural Products by USA
- Certain Taxes and Other Measures on Imported Wines and Spirits by EU
Cases of Complaints by India
Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat Products from India
Safeguard measures on imports of cotton yarn (other than sewing thread)
|European Union and a Member State
Seizure of Generic Drugs in Transit
Hence, WTO is a body which provides opportunity to aggrieved country to bring unfair trade practices to notice of Dispute Settlement body and to bring an end to such unfair practice. This dimension of WTO makes it a desirable and neutral body as it seeks to create a just global trading system. Since end of cold war both countries have witnessed a spectacular improvement in bilateral relations in almost all spheres. However, at WTO platform two countries remain arch rival and leaders of opposite camps. U.S. has severe disliking for India’s position in atleast two spheres Agriculture and Intellectual Property.