Definition of 'World Trade Organization - WTO'

An international organization dealing with the global rules of trade between nations. Its main function is to

ensure that trade flows as smoothly, predictably, and freely as possible.

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How wto deals helped India
Have any of the World Trade Organisation (WTO) agreements hit Indian businesses, and if so, to what extent ?

When the Uruguay Round of talks was on, India had embarked on its own economic reforms programme. The
programme called for liberalisation, rationalisation and globalisation.

The agenda demanded we abolish import licensing, lower import duties, allow foreign investment and technology,
eliminate export subsidies and so on. We did all this because of our own compulsions. So, there was no harm in
agreeing to the Uruguay Round agreements in 1995.

Many hold the view that we dismantled quantitative restrictions (QR) in 2001 under WTO pressures. Indeed, they
spread the fears that Indian businesses will be wiped out when we open our doors to foreign firms.

The fears have been proved false. Indian businesses have only become more efficient and competitive. The abolition
of QR was warranted in our own interest.

And the rule-based trading system helped us push it through. WTO agreements provide enough defence mechanisms
against unbridled imports and we use them to the hilt.

We still maintain the highest rates of import duties in the world. These are still, far below the bound rates we had
committed at the WTO.

In other words, we maintain the rates at the present levels in spite of the WTO allowing us to maintain higher levels of
import duties.

Very soon, we will be compelled to lower these duties further to cope with the inflow of foreign currency and the
consequent rupee appreciation.

Indian businesses have made gains in the last few years due to lower trade barriers in other countries. The export
growth is enough testimony to bolster the view that the WTO has helped us by opening up global markets. In fact, the
US trade deficit powers the economies of many poorer countries, including India.

Regarding the issue of intellectual property rights (IPR), we are still in the transition period. There will be difficulties
ahead but we must learn to cope with them.

And we may see more Indians filing patent applications and benefiting from them and more Indian firms working under
licence agreements from patent holders.

Regarding other agreements such as General Agreement on Trade in Services (GATS), we have selectively
liberalised only those sectors where we saw an advantage.

The assumptions that we gave away too much at the Uruguay Round or that WTO agreements created imbalances
have little basis.

This is not to say the agenda on reforms in agriculture, services, textiles and other sectors are proceeding at the
desired pace or direction. Yet, they are on the negotiating table, thanks to the WTO.

The imbalances in economic development exist among countries because of the colonial past, misgovernance and
corruption, besides religious bigotry and social injustice. WTO has little to do with any of these causes.
 Chapter1. Introduction

1.1 Objective of the Study

The specific objectives of the study are as follow:

To study the genesis and the provisions of the WTO and the GAATs in general.

To study cross-country experiences.

To examine, in detail, the provisions of and commitments in the GATT in respect of the financial

sector.

1.2 Source of Information

Basically, data from published sources have been used, e.g. publications of the WTO, the World Bank,

the Bank for International Settlements (BIS), the International Monetary Fund (IMF),the Reserve

Bank of India (RBI), and Government of India. In addition to the Internet, which has been intensively

used, some libraries have been sourced collecting information.

 Chapter2.

2.1 Introduction ToWTO

Trade promotes development. Theory and empirical studies corroborate this. It has also been

demonstrated that liberalized trade and a trade regime based on multilateral negotiations are equally

important for smooth and profitable conduct of trade. The WTO, which came into existence on

January 1,1995, is the only international institution hat embodies multilateral agreements with a view

to conducting trade between nations smoothly. The WTO is a legal entity-unlike its predecessor, the

General Agreement on Tariffs and Trade (GATT)- and it can be comparable to the IMF or the World

Bank. The members of the WTO now account for well over 90% of the global trade and virtually all of

its investment. The membership of the organization has increased to 146 as on April 4, 2003 from 76

founding members of 1995.

The organization deals with regulation of trade between participating countries; it provides a

framework for negotiating and formulizing trade agreement, and a dispute resolution process aimed at

enforcing participants adherence to WTO agreements which are signed by representatives of member

governments and ratified by their parliaments. Most of the issues that the WTO focuses on derives

from previous trade negotiations, especially from the Uruguay Round (1986-1994)
2.2 Objectives of WTO

Important objectives of WTO are mentioned below:

(i) to implement the new world trade system as visualized in the Agreement;

(ii) to promote World Trade in a manner that benefits every country;

(iii) to ensure that developing countries secure a better balance in the sharing of the advantages

resulting from the expansion of international trade corresponding to their developmental needs;

(iv) to demolish all hurdles to an open world trading system and usher in international economic

renaissance because the world trade is an effective instrument to foster economic growth;

(v) to enhance competitiveness among all trading partners so as to benefit consumers and help in

global integration;

(vi) to increase the level of production and productivity with a view to ensuring level of

employment in the world;

(vii) to expand and utilize world resources to the best;

(viii) to improve the level of living for the global population and speed up economic development

of the member nations.

2.3 Organizational Structure

The General Council has the following subsidiary bodies which oversee committees in different

areas:

Council for Trade in Good

There are 11 committees under the jurisdiction of the Goods Council each with a specific task. All

members of the WTO participate in the committees. The Textiles Monitoring Body is separate from

the other committees but still under the jurisdiction of Goods Council. The body has its own chairman

and only 10 members. The body also has several groups relating to textiles

Council for Trade-Related Aspects of Intellectual Property Rights

Information on intellectual property in the WTO, news and official records of the activities of the

TRIPS Council, and details of the WTO's work with other international organizations in the field.

Council for Trade in Services

The Council for Trade in Services operates under the guidance of the General Council and is

responsible for overseeing the functioning of the General Agreement on Trade in Services (GATS). It

is open to all WTO members, and can create subsidiary bodies as required.

Trade Negotiations Committee

 The Trade Negotiations Committee (TNC) is the committee that deals with the current trade

talks round. The chair is WTO's director-general. As of June 2012 the committee was tasked with

the Doha Development Round.

2.4 Functions of WTO

The former GATT was not really an organisation; it was merely a legal arrangement. On the

other hand, the WTO is a new international organisation set up as a permanent body. It is designed to

play the role of a watchdog in the spheres of trade in goods, trade in services, foreign investment,

intellectual property rights, etc. Article III has set out the following five functions of WTO;

(i) 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

frame work for the implementation, administration and operation of the plurilateral Trade Agreements.

(ii) The WTO shall provide the forum for negotiations among its members concerning their

multilateral trade relations in matters dealt with under the Agreement in the Annexes to this

Agreement.

(iii) The WTO shall administer the Understanding on Rules and Procedures Governing the

Settlement of Disputes.

(iv) The WTO shall administer Trade Policy Review Mechanism.

(v) 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.

2.5 Principles of WTO Trading System

The WTO agreements are based on a few simple principles, which are fundamental to

multilateral trading system. These principles are as under:

1. Trade Sans Discrimination

Under the WTO Agreements, a country is not permitted to discriminate between its trading

partners. If it grants a special favour to someone, it has to do the same to all other WTO members.

This is called the most favoured nation (MFN) principle. Some exceptions permitted under strict

conditions are:

Developed countries can give tariff preference to developing countries.

Countries entering into regional free trade agreements do not need to extend the preferences

negotiated in this context on an MFN basis.

2. National Treatment

Another form of trade without discrimination under the WTO rules is that a country should not

treat the imported and domestically produced goods unequally-at least after the foreign goods have

come into the domestic market.

3.Predictability

The WTO attempts to make the trading system stable and predictable, which, in turn,

encourages market security and investment, promotes employment and benefits commitments.

4.Promoting Fair Competition

 The objective of the WTO is to secure fair conditions for trade, be it MFN or national treatment

or anti-dumping and subsidies rules. Since the issues are too complex and several governments are

involved rule-based approach ensures fairness in trade.

5.Encouraging Development and Economic Reform

Over 75% of the WTO members are developing countries and countries in transition to market

economies. The WTO tries to give more benefits to these economies by allowing them more time to

adjust, greater flexibility and special privileges.

6.Single Undertaking

The WTO members must accept all of the obligations of the GATT, TRIPS and any other corollary

agreements. This ends the free ride of some developing countries, which under the old GATT could

receive the benefits of some trade concessions without having to join in and undertake their full

obligations.

7.Transparency.

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.

8.Safety valves.

In specific circumstances, governments are able to restrict trade. The WTOs agreements permit

members to take measures to protect not only the environment but also public health, animal health

and plant health.

2.6 WTO And Developing Countries

Of the 146 members of the WTO, almost two-thirds are from developing countries

(WTO,2001). The developing countries are of importance to the WTO not only because they are large

in number but also because they are emerging as significant players in the global economy. The

requirements of these countries, recognized as special by the WTO, are met by the following ways:

The WTO agreements have special provisions on developing countries.

The work in this area is overseen by the Committee on Trade and Development of the WTO.

The WTO Secretariat provides technical assistance for developing countries.

Special Provisions in the Agreements

The WTO agreements contain several provisions aimed at developing and least developed

countries. For example, the GATT includes a special section (part 4) on Trade and Development,

which has provision on the concept of non-reciprocity in trade negotiations between developing and

developed countries-when developed countries grant trade concessions to developing countries they

should not expect the developing countries to reciprocate by granting similar concessions.

Other areas where the WTO agreement show special concern for the developing countries are:

Extra time for developing countries to fulfill their commitment.

Provisions for increasing developing countries trading opportunities through greater market

access.(e.g. textiles, services and technical barriers to trade).

Provisions for several means of supporting developing countries .

2.7 Role of WTO in international trade

(i) WTO's aim is to liberalize international trade.

(ii) WTO establishes rules regarding international trade and sees that these rules are obeyed.

(iii) 153 countries of the world are currently members of the WTO.

(iv)It is seen that the developed countries have unfairly retained trade barriers. On the other hand,

WTO rules have forced developing countries to remove trade barriers.

 Chapter 3. Table

3.1 WTO Agreements and Dispute Settlement System

The WTO Agreements encompass goods, services and intellectual property. They deal with the

principles of liberalization and the allowed exceptions. They contain individual countrys

commitments to reduce customs tariffs and trade barriers and to open and continue to keep open

service markets. They spell out procedures for settling disputes. They prescribe special treatment for

developing countries. They want that governments should make their trade policies transparent by

notifying the WTO about laws in force and measures adopted, and through regular reports by the

secretariat on countries trade policies.

The table of contents of The Result of the Uruguay Round of Multilateral Trade Negotiations:

The Legal Texts is a long list of about 60 agreements, annexes, decisions and understandings.

The agreements fall into the following simple structure:

Table 1.1 Structure of WTO Agreements

Basis Goods Services Intellectual Disputes

Principles
Property

GATT GATS TRIPS Dispute

Settlement

Additional Other goods Services

Details Agreements Annexes.

and

Annexes.

Market Countries Countries

Access schedules of schedules of

commitments. commitments
Commitments
(and MFN

exemptions).

The goods and services agreements are based on a three-part common outline as follows.

o They start with broad principles: the GATT and the GATS. The agreement on TRIPS also belongs

to this category although it has no additional parts at present.

o Next are additional agreements and annexes dealing with special needs of specific sectors or

issues.
o Finally come the detailed and lengthy schedules of commitments made by individual countries

allowing specific foreign products or service-providers access to their markets. For the GATT, these

mean binding commitments on tariffs for goods and quotas for some agricultural goods. For the

GATS, the commitments state how much access foreign service-providers are allowed for specific

sectors, and they include lists of types of services where individual countries say they are not applying

the MFN principles of non-discrimination.

Dispute Settlement

In general, although trade goes on smoothly there occasions when a member is not happy with the

way some other members are conducting trade with it, i.e., not inconformity with the WTO rules. In

such case, the former may choose to use the WTOs dispute settlement mechanism.

Dispute settlement procedures of the WTO plays a pivotal role in timely resolution of the trade

conflicts in accordance with the WTOs established rules. Once a dispute is notified to the WTO, an

established timetable of automatic steps is initiated. The immediate priority is to settle the disputes

through consultrations. Otherwise, the members in the WTOs Dispute Settlement Body (DSB) refer a

dispute to a panel of experts.

The long term result of the dispute settlement process must be complete restoration of full

compliance with the WTO laws. However, if a member fails to implement a WTO ruling there are two

temporary measures that can be taken. The main objective of the WTO dispute settlement mechanism

is to contain unilateral imposition of trade sanctions, unilateral retaliation by powerful trading entities

is subject to multilateral WTO control.

The higher rate of notification of disputes is indicative of:

Greater confidence of members in the efficacy of the new dispute settlement mechanism.

The wider range of WTO rules and their greater specificity.

The wider range of issues covered by the WTO agreements, including services and TRIPS, all of

which are governed by the same dispute settlement system.

 The large number of WTO members increasing levels of trade and the greater importance of trade

in the economies of members.

3.2 GATT and WTO

The GATT and WTO are different. The WTO is the GATT and several other things. In other words,

the WTO is an incremental change from the GATT. The GATT as an international institution is dead,

and its place has been taken over by the WTO. The GATT, the agreement, still exists, but is no longer

the main set of rules for international trade.

Table 1.2 GATT and WTO: A Comparison

GATT WTO

1. The GATT was ad hoc and 1. The WTO and its agreements are

provisional. The GATT was never permanent. As an international

ratified in members parliaments, and organization, the WTO has a sound

it contained no provisions for the legal basis because members have

creation of an organization. ratified the WTO agreements.

2. The GATT had contracting 2. The WTO has members.

parties.

3.The GATT dealt with trade in 3. The WTO covers services and

goods. intellectual property as well.

4. The GATTs dispute settlement 4. The WTOs dispute settlement

mechanism was weak. system is faster, more automatic than

the old GATT system. Its rulings

cannot be blocked.