Finance

The Origin of World Trade Organisation from GATT

Established in 1947, the General Agreement on Tariffs and Trade (GATT) was engaged in efforts at promoting multilateralism in world trade through reduction of tariff and non-tariff barriers to trade. It provided a forum for the countries to discuss and overcome their trade problems and negotiate to enlarge inter-national trading opportunities.

Between 1947 and 1994, eight rounds of negotiations took place under the auspices of GATT. The seven rounds were concentrated on tariff reduction and several agreements on non-tariff measures like anti-dumping agreements. The last round, called the Uruguay Round, lasted over seven years from 1986 to 1994, widened the ambit of discussions to subjects like tariffs, non-tariff measures, rules, services, intellectual property rights, dispute settlement, textiles and clothing, and agriculture and paved way for the permament body of World Trade Organisation.

Uruguay Round

Uruguay Round of Multilateral Trade Negotiations was launched in September 1986 and concluded in April 1994. The following are the important areas of agreement reached at the negotiations:

(a) Tariffs. Developed countries agreed to cut their average tariffs on industrial goods by 40% over five years. The share of duty-free imports in total imports also went up. Developing countries agreed to raise, from 13% to 61%, the share of their imports that would be covered by `bound’ tariffs. Once tariffs are bound they cannot be legally raised. It was agreed that no country would initiate anti-dumping procedures if the volume of dumping constituted less than 3% of the domestic market of the importing country, and also if the margin of dumping is less that 2%.

Reduction in tariffs is expected to increase the scope for exports from India. However, the impact may not be large because the import tariffs are already low at industrialised countries and may fall further because of the agreement. Provision against anti-dumping measures are helpful to India. The Ministry of Commerce estimates that exports from the country would increase by USD 1.5 to 2 billion as a result of the agreement. This achievement depends upon the productivity and efficiency of our economy.

(b) Agriculture. In agriculture most non-tariff barriers were to be replaced with tariffs and the share of imports covered by bound tariffs increased. Relative to 1986-88 base, the domestic price supports (or floor prices) were to be reduced by 20% over six years by the developed countries and by 13% over 10 years by developing countries. By 1999, the subsidies should not exceed 5% in case of developed countries and 10% in case of developing countries, on the value of a product. The input subsidies will no longer be permitted across the board, but would have to be better targeted.

It is feared that the agreement is not favourable to India as the government will be forced to withdraw/reduce subsidies to farmers and patenting of seeds will force our farmers to buy them from multinational foreign enterprises.

These doubts are dispelled by those supporting the agreement. As per the definition of the agreement, Indian agriculture is taxed and not subsidised. Hence there is no need for change in the present set up. The cost of seeds is only a small portion of the total cost of the produce. Moreover, patenting of seeds will benefit India through use of high variety and hybrid seeds and resultant increased productivity.

(c) Textiles. Under GATT, trade in textiles was governed by a separate Multifibre Arrangement, which set quotas on developing countries’ exports to developed countries. The Uruguay Round established that trade in textiles and clothing would be gradually integrated into the World Trade Organisation. The quotas will be phased out by 2205.

India would be a major gainer on textiles front because they constitute one of its major items of exports. The gain can accrue only if the quality and productivity are keeping pace with developments elsewhere.

(d) Services. Trade in services is now governed by an agreement called the General Agreement on Trade in Services (GATS). Under this certain basic principles of multilateralism are applied to trade in services,The first principle is called national treatment, which means that in certain designated sectors and subject to certain conditions, governments must treat foreign services no less favourably than they do domestic providers of the same service. Second principle is the most favoured nation (MFN) treatment, which means that government must not accord less favourable treatment to the foreign service providers than that accorded to th service providers of any particular foreign country. Further, GATS contains provisions to ensure transparency by requiring the publication of all relevant laws regulations; liberal rules on international payments; and non-discrimination in recognising qualifications of service suppliers.

Inclusion of services under GATT was opposed by countries like India and Brazil. If this sector is opened to multinationals, the result can be adverse for the local service industry like banking and insurance. Conversely, labour is not included as a service and hence industries like software, health and hotel management, where the developing countries have advantage are left out.

(e) Intellectual property. The agreement on Trade Related Intellectual Property Rights (TRIPs) provides norms and standards for copyrights and related rights, trade marks, geographical indications, industrial designs, patents etc. On copyrights and related rights, the agreement requires compliance with the provisions of the Berne Convention.

The intellectual property rights are also subject of national treatment and MFN. Developed countries were allowed one year to bring their legislation and practices in line with the agreement; developing countries were given five years and the least developed countries eleven years.

The major controversy regarding the Uruguay Round has been about TRIPs. The introduction of product patents will confer a monopoly on multinational pharmaceutical companies and increase drug prices. Inclusion of patent protection to plant and seed varieties will lead to a dominance of agriculture by multinational corporations and small seed companies and farmers will not be permitted to multiply seeds and sell them to others.

In reply it is stated that drug prices will not increase in India because the presently available drugs shall not come under the agreement and also the government can implement Drug Prices Control Order and contain the prices. In the Plant Breeders Rights system India can provide for:

(a) farmer’s privilege which will enable him to use farm saved seed for growing subsequent crops; and

(b) researcher’s privilege which permits the use of one protected variety to breed another new variety without any specific permission of the original plant breeder.

(f) Investments. The agreement on Trade Related Investment Measures (TRIMs) requires the investment measures to conform to national treatment and not to impose quantitative restrictions like prescription of minimum local procurement of foreign companies or for imports by companies to be matched by exports. Countries facing balance of payments problems are exempted from the requirement. Developed countries have been given two years and the developing countries five years to conform to TRIMs.

The TRIMs agreement does not affect India because its foreign investment policy is already in tune with the requirements.

Conclusion

Overall, the benefits that are expected to accrue out of the accords outweigh the drawbacks. The accruing of the benefits to the world economy depends upon how each of the member countries implements the agreements in true spirit.

Origin of World Trade Organisation

As per the consensus at the Uruguay Round, the World Trade Organisation (WTO) was established on January I , 1995 replacing GATT. India is among its 85 founding members. The membership has since expanded to 125 countries. It is the legal and institutional foundation of the multilateral trading system. At present WTO has 164 member countries.

Unlike GATT, which was a set of rules, a multilateral agreement with no institutional foundation, the WTO is a permanent organisation created by international treaty ratified by the governments and legislatures of member-states. As the principal international body concerned with solving trade problems between countries and providing a forum for multilateral trade negotiations, it has a global status similar to that of the IMF and IBRD.

Two key units of WTO are Dispute Settlement Body (DSB) and the Trade Policy Review Body (TPRB). The DSB usually meets twice a month to hear complaints of violations of WTO rules and agreements. It sets up expert panels to study disputes and decide if the rules are being broken. The DSB’s final decisions cannot be blocked.

The TPRB is forum of reviewing the trade policies of all WTO states. Major trading powers are reviewed every two years, others every four years.

WTO members see the DSB producing fair and enforceable rulings. Developing countries regard it as a strong line of defence against more powerful economies. Its first ruling was against a US gasoline tax and Washington agreed to amend its law as a result.

But the proliferation of regional trade agreements such as Asia Pacific Economic Cooperation (APEC) forum and North American Free Trade Agreement (NAFTA), is posing a challenge to the success of WTO as these groups can turn into hostile economic and political blocs battling for markets and access to resources.

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