WORLD TRADE ORGANIZATION AND ITS IMPACT ON INDIAN ECONOMY

ABSTRACT:
The World Trade Organization (WTO) is an organization that intends to supervise and
liberalize international trade. The organization officially commenced on January 1,1995
under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade
(GATT), which commenced in 1948. The organization deals with regulation of trade between
participating countries; it provides a framework for negotiating and formalizing trade.
The Indian economy has experienced a major transformation during the decades. Apart from
the impact of various unilateral economic reforms undertaken since 1991, the economy also
had to reorient itself to the changing multilateral trade discipline within the newly written
GATT-WTO framework. The unilateral trade policy measures have encompassed exchange-
rate policy, foreign investment, external borrowing, import licensing, custom tariffs, and
export subsidies. The multilateral aspect of India's trade policy refers to India's WTO
commitments regarding trade in goods and services, trade-related investment measures, and
intellectual property rights. The present study analyzes the economic effects on India and
other major trading countries/regions of the Uruguay Round (UR) trade liberalization and the
liberalization that might be undertaken in a new WTO negotiating round. India's welfare gain
is expected to be 1.1% ($4.7 billion over its 2005 GDP) when the UR scenarios get fully
implemented. The additional welfare gain is an estimated 2.7% ($11.4 billion) when the
assumed future WTO round of multilateral trade liberalization is achieved. Resources would
be allocated in India to the labor-intensive sectors such as textiles, clothing, leather and
leather products, food, beverages and tobacco. These sectors would also experience growth in
output and exports. Real returns to both labor and capital would increase in the economy. The
scale effect (percent change in output per firm) is positive for all the ten sectors of
manufacturing, indicating that Indian firms become more efficient than before. Finally, even
if India undertakes unilateral trade liberalization of the order indicated in the WTO
multilateral scenarios, it would still benefit, although less so than with multilateral
liberalization. 

INTRODUCTION
World Trade Organization – WTO (1995)

World Trade Organization (WTO) is an International organization for the Trade opening at
global level; a platform for the member countries for the negotiation of Trade agreements; a
forum to settle all the trade disputes with rule and regulation; an international body to
maintain a system regarding rule and regulation of International Trade etc. Thus WTO is an
International body of Trade regulation at global level. WTO office is situated at Geneva,
Switzerland. This organization was established in 1 January ,1995. Till the date WTO has its
160 member countries. Yemen is the 160th member country joined WTO on 26th June 2014
and almost 25th other counties are the observer and they may be also a member country of
WTO in future.1
The working of WTO is based on the negotiation decision which has been taken in its
ministerial conferences. The work done by the WTO is based on the negotiations of the
GATT Uruguay round which was the 8th conference of the GATT from 1986-94. GATT
(General Agreement on Tariff and Trade) was the earliest form of WTO established in 1
January 1995. The WTO at present is the result of GATT negotiation before the
establishment of World Trade Organization on 1st January 1995. But Today WTO is working
on the basis of its “Doha round Agenda” which was launched in 2001.
At International level every country has to face trade barriers which may be of any type.
WTO works to remove these trade barriers for free smooth of International trade but
sometime it also maintain such tariff barriers to protect consumer or to prevent of various
spreadable disease which can be harmful for other member countries. Negotiations are the
backbone of working of WTO because
negotiation signed by any member country is the acceptance by those
countries that they will follow all the rule and regulations which was
mentioned in negotiation. Negotiation is the legal acceptance for smooth
flow of International Trade. It is a type of contract at which its member
countries are ready for their international issues regarding trade and
developments. This negotiation helps all the exporters, importers, producers
of goods and services for the smooth flow of their business.
The idea behind WTO establishment was to promote the free trade
concept means to make international trade flow as freely as possible for the
member countries of WTO and also remove undesirable side effects from
the trade. WTO negotiations, agreements provide a legal acceptance of the
member country which makes exporter and importer surety that all the trade
activities will be done through rule and regulation of the WTO negotiations
which means there will be no sudden changes in policies regarding trade and
these rules and regulation makes economic activity more transparent.
There are various issues generally arises during international trade
between trading countries and many times it becomes very difficult for the
trading country to solve out such situations. For such types of issue WTO
has been established the Dispute Settlement Bodies which works under the
WTO agreements in case of disputes arises. This body provides a legal
platform to solve any trade related problem in trading countries.
WTO working is based on the decision of its member governments
and all the major decisions have been taken by its member’s governments.
Member governments include various Ministers, Ambassadors or its
Delegates who meets at least once every two years and on regularly basis
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respectively in Geneva, Switzerland. The roles of Secretariat Employees are
also very important in all the decision whether they are minor or major.
There are almost 600 Secretariats employees. These secretariat employees
report WTO on daily basis about implementation of rule and regulation,
updates, so that it becomes very helpful to make decisions by member states.
WTO working is based on the negotiations and these negations are
made in WTO through ministers during ministerial conference. These
negations are not stable in nature which means they always changed
according to new decision taken by ministers in ministerial conferences.
WTO agreements cover all the trade related with Intellectual property, goods
and services etc. It promote its member countries for lower custom tariffs, to
remove trade barriers, to provide and open market etc. from the smooth flow
of international trade because international trade are directly related with the
economic growth of country.
Every member country has to make a transparent trade policy
according to the law of World Trade Organization. These are various
councils and committees of WTO which keep on their eye on member
countries trade policy and they also ensure for the proper implementation of
rule and regulation of World Trade Organization. WTO secretariat also
performs a major role for proper implementation of WTO laws and they also
scrutinize and revised the trade policy of member countries time to time.
In case of any disputes arises regarding trade in the member countries
then Dispute Settlement Body of WTO solve that disputes according to the
rule and regulation of agreements. Dispute settlement is very necessary for
the smooth flow of international Trade. Dispute Settlement body is a legal
body of WTO which have various expert regarding laws, economic field etc.
For the better flow of International Trade WTO also provides various
aids to the developing countries so that they can develop better skills and
good infrastructure which is very must for the International Trade. For the
better understanding of Trade, WTO also conducts various courses regarding
trade at the head office in Geneva for the government officials. Apart from
that WTO makes various special provision for the developing countries like
provision for improving trade opportunity; provision for dispute settlement;
financial and moral support to build up their trade capacity etc.
WTO also maintains healthy communication with most of the NGO‟s,
media houses, international organizations etc. so that a common man and
society can easily understand the aim and objectives of WTO. Through its
effective communications and awareness WTO easily communicate its
policy all over the world. All the decisions and working of WTO and Dispute Resolution
Mechanism is based on its agreements.2 An agreement is a legal acceptance of its member
countries.These agreements are generally very lengthy and complex in nature because
it covers a wide range of negotiations or activities related with International
Trade. These agreements ensure to individuals and all countries that there
will be no discrimination by its member countries regarding trade activities
if any member country do not follow its rule and due to this other countries‟
trade affected then dispute settlement body solve that problem.
WTO also stand for the trade barriers which is generally adopted by
various countries to protect their domestic market or sometime also to stop
import of foreign countries. WTO observe all these activities like rate of
custom duties, quota or various other measures also and WTO also

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encouraged investment and ensures investors and governments that trade
barriers will not become obstacles for them. For the development of trade
WTO tries to stop unfair means such as high rate of import duties, dumping
products even below cost etc. WTO also work for the under developed
countries who are still in transition phase of economy to market economy.
WTO makes a special provision for such countries such as; it provides
excess time for the adoption of WTO agreements, Provides special
privileges to become more familiar with WTO so that at global level there
may be a healthy environment for International Trade.
WTO is also very aware for the environment. It has a special
provision for the member countries to protect environment from the side
effects of business. According to WTO every government and companies
should be aware for the environment so that plant health, animal can be
maintained.

RULE, REGULATION AND PRINCIPLES OF WTO :

WTO is an international organization that is why its law is very

complex and specialized. WTO law deals with a wide range of issues such as
tariffs, import quota, intellectual property rights, national security measures,
food safety measures, export import of goods and services etc. WTO rules
and principles3 can be categorized into following groups :

 WTO rules based on the non-discrimination issues.

 WTO rules based on the market access.
 WTO rules based on the unfair trade of the countries.
 WTO rules based on the conflict solution arise due to trade liberalization and other
society related values.
 WTO rules based on the special and different cases of the developing countries.
 WTO rules based on the key institutional and procedure relating with the dispute
settlement mechanism and decision making.
The rules and principle mentioned above collectively known as multilateral trading system.

STRUCTURE OR HIERARCHY OF WORLD TRADE ORGANIZATION (WTO):

WTO is an international body came into existence on 1 January 1995

after fully replacing GATT. It is an organization dealing with international
trade related issue in member countries. Its working is based on negotiation
which is a collective decision of its member countries. The structure of
WTO includes various working bodies mentioned below:
 Ministerial Conference
 General Councils
 Trade Policy Review Body
 Dispute Settlement Body
 Councils on Trade in Goods and Services
 Director General and Secretariats
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  Committee on Trade and Development and Committee on Trade and Environment etc.

HISTORICAL BACKGROUND OF WTO:

The concept of International Organization came into existence after

Bretton Woods Conference which was held on July 1994. This Conference
was held at Mount Washington Hotel, situated in Bretton Woods, New
Hampshire, U.S.
There was almost 730 delegates from all of the 44 Allied Nations of
world participated in this conference. This conference was formally known
as United Nations Monetary and Financial Conference and letter on known
as Bretton Woods Conference.
The objective behind this conference was to find out the solution for
better economic growth and stability and also to recover from the causes of
World War II and manage all the activities related with International
Organizations so that all the issue related with Finance and International
monetary can be solve with the help of this organization and there for
originations like International Monetary Fund (IMF), International Bank for
Reconstruction and Development (IBRD) etc. were established.

BRETTON WOODS CONFERENCE:

All the delegates agreed for the establishment of International

Economic Institution for the elimination of Causes of World War II. The
institutions are:-
1. World Bank or International Bank for Reconstruction and
Development (IBRD)
2. International Monetary Fund (IMF)
3. International Trade Organization (ITO)

U.S. President Franklin D. Roosevelt statement in Breton Woods

Conference was: “The Economic health of every country is a proper matter
of concern to all its neighbors, near and far.”

WORLD BANK

World Bank was established in July 1945 with the motto of “Working for
a world free of poverty”. The idea behind the establishment of World Bank
was mentioned below:
1. To manage world economies which have affected from the World
War–II.
2. To increase development in developing countries.
3. To promote investment.
4. Providing Loan and Capital facility etc.

INTERNATIONAL MONETARY FUND (IMF):

IMF was established on 27 December 1945 but its financial operation

was started from 1st March 1947. It was developed as an International
Organization which objective was:
1. To promote Economic Growth and Development.
2. To promote Economic Stability.
3. Financial Help to developing countries.
4. Fixed exchange rate arrangements between nations etc.

INTERNATIONAL TRADE ORGANIZATION (ITO)

It was just a Charter on Paper for the establishment on International
Organization for the belter regulation of International Trade.4 All the
negotiation regarding of ITO charter were discussed in 1948 and this charter
promoting for the establishment of International Trade Organization (ITO).
All the rule and regulation regarding International Trade were discussed in
this charter. But when this ITO charter was presented in front of United
States then UN Congress refused this proposal on the basis of their statement
that such International Organization will involve in countries internal
economic issues. The idea behind this organization was:
1. To make smooth International Trade.
2. To communicate information regarding trade in member countries.
3. To provide consultation and legal advice for betterment of
International Trade.
4. To increase volume and improvement in International Trade.

GENERAL AGREEMENT ON TARIFF AND TRADE (GATT)

When UN Congress refused the ITO charter then member countries

tried to solve out there problem related with international trade and they
agreed to make a General Agreement on Tariff and Trade (GATT). This was
the alternate solution of International Trade Organization (ITO) as a new
multilateral institution for the better international economic cooperation. At
that time in 1947, 23 countries (Australia, Belgium, Brazil,
Burma(Myanmar), Canada, Ceylon(Sri Lanka), Chili, China, Cuba,
Czechoslovakia, France, India, Lebanon, Luxembourg, Netherlands, New
Zealand, Norway, Pakistan, South Africa, Southern Rhodesia (Zimbabwe),
Syria, United Kingdom (UK), United States)were agreed on the GATT
concept.
The objective of GATT was:
1. To give a boost to Trade Liberalization.
2. To provide tariff negotiation facility.
3. To promote International Trade
4. To solve the problem related with International Trade through
Dispute Settlement Mechanism (DSM)
GATT was succeeded to eliminate various trade barriers and also
succeed in lowering tariffs almost 45,000 tariff concessions affected $10
billion. The main objective of GATT was (i) Rule and Regulation of
International Trade (Multilateral Negotiations), and (ii) Tariff Concessions.5

BRIEF HISTORY OF ALL NEGOTIATING ROUNDS

From the date of establish of GATT till today eight round have been
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completed and the entire round have different subjects.6 GATT eight round
which is known as a Uruguay round is very famous and it covers most of the
subject regarding Tariffs, Non-Tariff measures, rules, services, intellectual
property, dispute settlement, textiles, agriculture, creation of WTO, and so
on. After the success of this round which took eight year of time period from
1986 to1994, World Trade Organization (WTO) came into existence on 1st
January 1995. GATT rounds were started from 1947 (1st round) in Geneva,
1949 (2nd round) in Annecy, 1951 (3rd round) in Torquay, 1956 (4th round) in
Geneva, 1960-61 (5th round) in Dillon round (Geneva), 1964-67 (6th round)
in Kennedy Round (Geneva), 1973-79 (7th round) in Tokyo Round (Geneva),
1986-94 (8th round) in Uruguay Round (Geneva) and 2001 to present (9th
round) in Doha Round.

GATT First Round in Geneva (1947)

The first round of GATT was held in Geneva, Switzerland on 30th
October 1947 and in its first round 23 countries participated and they agreed
on the establishment of General Agreement on Tariff and Trade (GATT) and
they led to the establishment of GATT itself. Another major thing was
45,000 reductions in participants‟ custom duties.

GATT Second Round in Annecy (1949)

The second round of GATT was held in Annecy which is in the
French Alps not for from Geneva. A total of 13 countries participated in this
round they agreed on a contract to reduce tariff which is known as
“Contracting Parties” and also agree to 5,000 tariff concessions.

GATT Third Round in Torquay (1957)

Torquay, England was he witness of third round of GATT which was held
on April 1951 and 38th countries participated in this GATT round. The focus
point of this round was that all 38th participating countries were agreed on
8,700 tariff concessions which were ¾ of the tariffs which were effect in
1948.

GATT Fourth Round in Geneva (1955-59)

The fourth round again came back in Geneva and this conference was
started in 1955 and concluded in 1959 almost took 4 years. 23rd countries
participated in this round and they agreed on $ 2.5 billion tariff reduction
on Trade.

GATT Fifth Round in Geneva (Dillon Round) (1960-61)

On the Name of Douglas Dillon who was US Under-Secretary of
State this round is known as “Dillon Round”. He was the one who proposed
negotiations. This round was also held in Geneva from 1960 to 61 and 26th
countries participated in this round and they were agreed on reducing over $
4.9 billion in tariffs about 4,400 tariff concessions. The other main thing
was discussion on the establishment of new organization named as
European Economic Community (EEC).

GATT Sixth Round in Geneva (Kennedy Round-1964-67)

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The 6th round of GATT known as Kennedy round and this named
after the assignation of U. S. President John. F. Kennedy who was in favor
of the reformation of U.S. Trade agenda. This round was started from 1964
till 1967 at Geneva and 62 countries who covers 75% of total world trade
participated in this round and all of them agreed on tariff concession worth $
40 billion of the world trade.

GATT Seventh Round in Geneva (Tokyo Round – 1973-79)

The 7th round of GATT held in Tokyo from 1973 to 79 (74 months).
Tokyo round succeed because it continued GATT‟s efforts to reduce Tariffs
and make International Trade smoother. 102 countries participated in this
conference and make a commitment that they will not increase current tariff
rate which covers $ 300 billion. This was the first time when Subsidies,
Standards Code, Import licensing procedures, Custom valuation –
interpreting Article VII, Bovine meat Arrangement, Civil Aircraft,
Dairy products, Government Procurement etc. came under the Umbrella
of GATT.

GATT Eight Round in Uruguay (Uruguay Round 1986-94)

The 8th round of GATT was held in Uruguay therefore it is known as
“Uruguay Round” scheduled from 1986 to 1994 (8 years).Although the
scheduled was to end this round in December in 1990 but the issue related
with farm subsidies on which U.S was not agreed which leads to delay in
this round by four year and finally this round end in 1994.
The Uruguay Round was most ambitious round of GATT and therefore
many major decision and negotiations took place in this round which are
mentioned below:-
 Replacement of GATT and the establishment of World Trade
Organization (WTO).
 Services and Agriculture included into negotiation.
 Formation of Dispute Settlement Body.
 First time Textiles and Clothing, Intellectual Properties included in
negotiations.
 102 Tariffs and Non-Tariffs measures.
 Tariff reduction about 40 per cent.
 Formation of Various Agreements such as :
 Agreement on Agriculture (AoA)
 Agreement on Textiles and Clothing (ATC)
 Agreement on Sanitary and Phyto-sanitary measure (SPS)
 Agreement on Technical Barriers to Trade (TBT‟s)
 Agreement on Intellectual Property Rights (IPR‟s) etc.

One twenty eight countries participated in this round and there

member finally agreed on the final act of Uruguay round in Marrakesh.

WORLD TRADE ORGANIZATION AND INDIAN ECONOMY:

 The World Trade Organization is playing an important role for administering the new global
trade rules in the following ways:-
1. Trade Agreement:- The WTO administers, through various councils and committees, the
28 agreements contained in the final act of the Uruguay Round 7, plus a number of plurilateral
agreements, including one government procurement.
2. Tariffs Rules:- The WTO also oversees the implementation of significant tariff cuts
(averaging 40 percent) and reduction of non-tariff measures agreed to in the trade
negotiations.
3. Trade Watch Dog:- The WTO is a watchdog of international Trade, regularly examining
the trade regimes of individual members .In its various bodies, members flag proposed or
draft measures by others that can trade conflicts. Members are also required to notify in detail
various trade measures and statistics which are maintained by the WTO in a large data base.
4. Various Conciliation Norms:- The WTO provides several conciliation mechanisms for
finding an amicable solution to trade conflicts that can arise among members.
5. Trade Disputability Settlement :- Trade disputes that cannot be solved through bilateral
talks are adjudicated under the WTO Dispute Settlement Court Panels of Independent expert
are established to examine disputed in the light of WHO rules and provide rulings .This
tougher streamlined procedure ensures equal treatment for all training patterns and
encourages members to live up to their obligations.
6. WTO is consultant body:- The WTO is a management consultant for world trade. Its
economists keep a close watch on the pulse of the global economy and provide studies on the
main trade issues of implementation or Uruguay Round results through a newly established
Development division and strengthened technical co-operation and training division.
7. Checks Of Trade Barriers:- The WTO will be forum where countries continuously
negotiate exchange of barriers all over the world. And the WTO already has a substantial
agenda for further negotiations in many areas.

POSITIVE IMPACT OF WTO ON INDIAN ECONOMY :-

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

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1)   Increase in export earnings:-
Estimates made by World Bank, Organisation for Economic Co-operation and Development
(OECD) and the GATT Secretariat, shows that the income effects of the implementation of
Uruguay Round package will be an increase in traded merchandise goods. It is expected that
India’s share in world exports would improve.
2)  Agricultural exports:-
Reduction of trade barriers and domestic subsidies in agriculture is likely to raise
international prices of agricultural products. India hopes to benefit from this in form of higher
export earnings from agriculture. This seems to be possible because all major agriculture
development programmes in India will be exempted from the provisions of WTO
Agreement8.
3)  Export of textiles and clothing:-
With the phasing out of MFA (Multi - Fibre Arrangement), exports of textiles and clothing
will increase and this will be beneficial for India. The developed countries demanded a 15
year period of phasing out of MFA, the developing countries, including India, insisted that it
be done in 10 years. The Uruguay Round accepted the demand of the latter. But the phasing
out Schedule favours the developed countries because a major portion of quota regime is
going to be removed only in the tenth year, i.e. 2005. The removal of quotas will benefit not
only India but also every other country.
4)   Multilateral rules and disciplines:-
The Uruguay Round Agreement has strengthened Multilateral rules and disciplines. The most
important of these relate to anti - dumping, subsidies and countervailing measures, safeguards
and disputes settlement. This is likely to ensure greater security and predictability of the
international trading system and thus create a more favourable environment for India in the
New World Economic Order.
5)        Growth to services exports:-
Under GATS agreement, member nations have liberalised service sector. India would benefit
from this agreement. For Eg:- India’s services exports have increased from about 5 billion US
$ in 1995 to 96 billion US $ in 2009-10. Software services accounted for about 45% of
service exports.
6)        Foreign investment:-

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 India has withdrawn a number of measures against foreign investment, as per the
commitments made to WTO. As a result of this, foreign investment and FDI has increased
over the years. A number of initiatives has been taken to attract FDI in India between 2000
and 2002. In 2009-10, the net FDI in India was US $ 18.8 billion.

    NEGATIVE IMPACT OF WTO ON INDIAN ECONOMY:-

1) TRIPs :-
The Agreement on TRIPs at Uruguay Round weights heavily in favour of
Multinational Corporations and developed countries as they hold a very large number of
patents. Agreement on TRIPs will work against India in several ways and will lead to
rponopoly of patent holding MNCs. As a member of WTO, India has to comply with
standards of TRIPs.9

2) TRIMs :-
Agreement on TRIMs10 provide for treatment of foreign investment on par with domestic
investment. This Agreement too weights in favour of developed countries. There are no
provisions in Agreement to formulate international rules for controlling restrictive business
practices of foreign investors. Jn case of developing countries like India, complying with
Agreement on TRIMs would mean giving up any plan or strategy of self - reliant growth
based on locally available technology and resources.

3) GATS :-
One of the main features of Uruguay Round was the inclusion of trade in services in
negotiations. This too will go in favour of developed countries. Under GATS agreements, the
member nations have to openup services sector for foreign companies. The developing
countries including India have opened up services sector in respect of banking, insurance,
communication, telecom, transport etc. to foreign firms. The domestic firms of developing
countries may find it difficult to compete with giant foreign firms due to lack of resources &
professional skills.
4) Non - Tariff Barriers:-

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Several countries have put up trade barriers and non - tariff barriers following the formation
of WTO. This has affected the exports from developing countries. The Union Commerce
Ministry has identified 13 different non - tariff barriers put up by 16 countries against India.
For eg. MFA (Multi - fibre arrangements) put by USA and European Union is a major barrier
for Indian textile exports.
5) Agreement on Agriculture (AOA) :-
The AOA is biased in favour of developed countries. The issue of food security to developing
countries is not addressed adequately in AOA. The existence of global surpluses of food
grains does not imply that the poor countries can afford to buy. The dependence on necessary
item like food grains would adversely affect the Balance of Payment position.

6) Inequality within the structure of WTO:-

There is inequality within the structure of WTO because the agreements and amendments are
in favour of developed countries. The member countries have to accept all WTO agreements
irrespective of their level of economic development.
7)    LDC Exports:-
The 6th Ministerial Conference took place at Hong Kong in December 2005. In this
Conference, it was agreed that all developed country members and all developing countries
declaring themselves in a position to do so, will provide duty - free and quota - free market
access on a lasting basis to all products originating from all Least Developed Countries
(LDC). India has agreed to this. Now India's export will have to compete with cheap LDC
exports internationally. Not only this, the cheap LDC exports will come to Indian market and
compete with domestically produced goods.     
India will face several problems in the process of complying with WTO agreements, but it
can also reap benefits by taking advantage of changing international business environment.
For this it needs to develop and concentrate on its areas of core competencies.

CONCLUSION:
India is commanding strong economic performance and poverty reduction. India continued
the economic reforms trade liberalization, lower government involvement in the economy and
liberalization of key services sectors. Trade reforms had concentrated on tariff reform and the
removal of quantitative restrictions on imports. Higher economic growth will be achieved by
stepping up reforms, including trade measures, especially to reduce the anti-export bias in the
import regime. India has made significant progress in reforming services sectors, notably
telecommunications, banking and insurance. The importance of the agricultural sector in
India has stressed the need to further liberalize it in order to develop its full potential.
Concerns were expressed over subsidies for agricultural products and inputs, which have
contributed to large grain stocks and to export restrictions on agricultural goods. India was
commended for its reform process, including trade liberalization, and simplification of the
trade and investment regime. However, we think we all agree that India needs to do more if
growth targets are to be met and a serious dent is to be made in the still high rate of poverty.